Leading supplemental insurer Aflac Incorporated (AFL), which is headquartered in Columbus, Ga., is currently trading 3.2% below its 52-week price high of $57.64, which it hit on August 16, 2021. Also, on September 10, AM Best assigned indicative Long-Term Issue Credit Ratings of ‘a-’ (Excellent) to senior unsecured issues and ‘bbb+’ (Good) to subordinated issues in AFL’s recently filed shelf registration.

The stock has gained 52.9% in price over the past year to close yesterday’s trading session at $56.49. 

However, AFL recently witnessed a decline in hedge fund sentiment. Furthermore, the continued spread of the Delta coronavirus variant makes the company’s near-term prospects uncertain because its profitability could be significantly impacted.

Here’s what could influence AFL’s performance in the coming months:

Solid Financials

AFL’s total revenues surged 2.9% year-over-year to $5.56 billion for the fiscal second quarter ended June 30, 2021. In addition, its adjusted net investment income grew 15.2% year-over-year to $983 million. Its adjusted earnings came in at $1.08 billion, representing a 17.3% year-over-year increase. Also, its adjusted EPS came in at $1.59, up 24.2% year-over-year.

Reasonable Valuation

In terms of forward P/S, AFL’s 1.72x is 49.6% lower than the 3.42x industry average. Likewise, its 1.97x forward EV/S is 39% lower than the 3.23x industry average. Furthermore, the stock’s forward P/CF and non-GAAP P/E of 8.09x and 9.84x, respectively, are lower than the 11.05x and 11.61x industry averages.

Unfavorable Analyst Estimates

Analysts expect AFL’s revenue to decrease 10.4% for the quarter ending December 31, 2021, 1.6% this year, and 3.3% next year. Also, the company’s EPS is expected to decline 8.3% year-over-year to $5.20 in its fiscal year 2022.

Poor Profitability

In terms of trailing-12-month net income margin, AFL’s 39.95% is 37.3% lower than the 63.72% industry average. Likewise, its 11.05% trailing-12-month levered FCF margin is 45.7% lower than the 20.34% industry average. And the stock’s 0.14% trailing-12-month asset turnover ratio is 27.8% lower than the 0,20% industry average.

POWR Ratings Reflect Uncertainty

AFL has an overall C rating, which equates to a Neutral in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree. 

Our proprietary rating system also evaluates each stock based on eight distinct categories. AFL has a C grade for Quality, which is in sync with its lower-than-industry profitability ratios.

Furthermore, the stock has a D grade for Growth, and a C grade for Sentiment, consistent with unfavorable analyst sentiment.

AFL is ranked #5 of 10 stocks in the Insurance - Accident & Supplemental industry. Click here to access AFL’s ratings for Value, Momentum, and Stability as well.

Bottom Line

While AFL reported impressive earnings results for the second quarter of 2021, its near-term prospects look uncertain. Therefore, we think it could be wise to wait for a better entry point in the stock.

How Does Aflac (AFL) Stack Up Against its Peers?

While AFL has an overall POWR Rating of C, one  might want to consider investing in Insurance - Accident & Supplemental stocks with a B (Buy) rating, such as Triple-S Management Corporation Class B (GTS) and Assurant, Inc (AIZ).

AFL shares were trading at $56.44 per share on Wednesday afternoon, up $0.65 (+1.17%). Year-to-date, AFL has gained 29.31%, versus a 22.20% rise in the benchmark S&P 500 index during the same period.

Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles.

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