AFL is in stage #2. The stock performed very well during the bear market. We had a decline but it recovered very nice and it wasn’t as deep as what we saw in 2020. Today, the stock is also pulling back from a strong rally which may provide a good opportunity.
However, since 2011 AFL saw declining revenues with the biggest drop in that started in 2020 and deepened in 2022. At the end of 2022 we saw a recovery but still not enough to grow higher. The declining revenues may impact price.
We also see a concerning decline in free cashflows and given that insurance companies are usually cash cows, this is a problem:
Despite declining revenue and cash flow, we see increasing EPS. The rate of the EPS is impressive. On annual basis AFL grows by 25% and 5-years average is at 20%. This are very good numbers!
Aflac has a lot of cash on hand and very insignificant amount of debt:
The company pays dividends and increase them regularly. It increases the dividends by 5% on annual basis, and the average 5 year dividend growth is 10%. This is a good dividend grower.
AFL valuation is very positive. Adjusted for earnings, the company is undervalued and it has been undervalued since 2007. Its fair value currently sits at $96 a share. However, the stock trades slightly above the normal PE (assigned by the market, the blue line on the chart below), but the earnings adjusted value is way higher.
The stock beats the market slightly on dividends and capital appreciation, so it is a good dividend growing conservative investment. Given the valuation, the stock is a buy.
The stock is now BUY
This post was published in our newsletter to our subscribers on Sunday, August 18th, 2023. If you want to learn more about our stock technical analysis subscribe to our weekly newsletter.
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