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Leigh Baldwin & Co.

112 Albany Street, Cazenovia, NY 13035 | Phone: (315) 655-2964 Toll Free: 1-800-659-8044

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Stock of the Week

Aflac

August 11th 2010 Aflac
NYSE Symbol: AFL
Industry: Insurance
Price as of 8/11: $49.45

Last week the glass was half full. This week, half empty. The Federal Reserve confirmed what everyone knew; the economy has slowed and may need another stimulus sooner rather than later. However, how to stimulate the economy, to kick start it once again, is the big question. A number of sectors have stalled out. Semiconductor stocks look awful even though most reported spectacular earnings three weeks ago and raised guidance, like Intel. Go figure. The financials have also sold off as the easy money made from the low interest rates is going away. These low interest rates don't seem to be helping the housing market, savers, or now the big banks. Within the financial sector, the insurance stocks seem to be separating themselves from the pack. This week we'll feature an insurance stock that raised its' dividend and reinstated their stock repurchase program. The stock of the week is disability insurance provider, Aflac. Aflac's stock actually sold off following this news which tells you a lot about the market's psychology. So even though the fundamentals for Aflac and most companies continue to improve, the fact that the stocks are not reacting is once again giving investors another attractive entry point.
Back in July, Aflac beat earnings estimates by 2 cents making $639 million or a $1.35 a share. Revenues rose 15.5% to $4.98 billion in-line with estimates. A break down in sales shows how important Japan is to their business. Revenue rose 16%, led by growth of 9% in Japan, which made up 80% of their revenue in the quarter. Business in the U.S. remains weak. The significant portion of Aflac's business is in Japan, making its operations especially sensitive due to fluctuations in the dollar-yen exchange rate. Case in point, in the conference call management stated they are in a very good position to meet their earnings objectives and extend their record of growth with operating earnings per diluted share rising by 9% to 12%, excluding the impact of the yen. Within that range, they expect operating earnings to increase approximately 10% for the full year to $5.34 per diluted share before the impact of foreign currency. If the yen averages 90 to the dollar for the remainder of the year, they expect full-year reported earnings to be about $5.44 per diluted share. The objective for 2011 is to increase operating earnings by 8% to 12% before the impact of foreign currency, in-line with consensus estimates.
Even though Aflac's stock has performed well over the last year, the stock remains cheap. Currently the stock is trading for 9 times earnings and 8 times next years' estimates. The stock also trades for 1.2 times sales and 2.4 times book value. The stock goes ex-dividend on Monday the 16th so you have to buy it before Monday to receive the dividend. Aflac looks like an attractive stock in these volatile times.