Aflac currently trades at $107.18 per share and has shown little upside over the past six months, posting a small loss of 1.2%. The stock also fell short of the S&P 500’s 22.9% gain during that period.
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Why Do We Think Aflac Will Underperform?
We're sitting this one out for now. Here are three reasons why AFL doesn't excite us and a stock we'd rather own.
1. Declining Net Premiums Earned Reflect Weakness
Insurers sell policies then use reinsurance (insurance for insurance companies) to protect themselves from large losses. Net premiums earned are therefore what's collected from selling policies less what’s paid to reinsurers as a risk mitigation tool.
Aflac’s net premiums earned has declined by 7.8% annually over the last four years, much worse than the broader insurance industry.
3. Projected BVPS Growth Is Slim
An insurer’s book value per share (BVPS) increases when it maintains a profitable pre-tax profit margin and effectively manages its investment portfolio.
Over the next 12 months, Consensus estimates call for Aflac’s BVPS to grow by 4.6% to $52.33, lousy growth rate.
Final Judgment
Aflac doesn’t pass our quality test. With its shares lagging the market recently, the stock trades at 2.1× forward P/B (or $107.18 per share). At this valuation, there’s a lot of good news priced in - we think there are better stocks to buy right now. We’d suggest looking at the most dominant software business in the world.
Stocks We Would Buy Instead of Aflac
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