After a satisfactory performance in the second quarter, Aflac Inc. (AFL) further enhanced its value by declaring a 7.1% hike in its dividend and by recommencing its share repurchase program that was shelved in 2008.
Aflac’s business operations had got a hard thrashing by the financial crisis that peaked in 2008, a condition similar to its peers. The global market crisis had significantly impacted the investment returns of the company that restricted growth opportunities. Particularly, Aflac’s U.S. wing had an elbow in the eye with reduced consumption levels that adversely affected the premiums and investment income.
However, Aflac fairly weathered the storm, given the strong position in its Japan wing, the CAIC acquisition in 2009 and the improving markets that are favourably affecting the dollar/yen exchange rates while providing investment opportunities.
Moreover, despite challenging economic conditions that has marred the insurance industry, Aflac continues to enjoy a fair liquid position. The company’s investments and cash position is experiencing a steady growth. It increased to $73.2 billion in 2009 from $68.6 billion in 2008 and $57.1 billion in 2007, thereby providing ample operating leverage to the balance sheet.
Dividend Hike
Based on this sturdy liquidity position, on Tuesday Aflac raised its fourth quarter dividend from 28 cents to 30 cents per share. The increased dividend is payable on December 1, 2010 to the shareholders of record as on November 17, 2010.
Share Repurchase in Vicinity
Earnings Recap
Last month, Aflac reported its second quarter operating earnings per share of $1.35, a couple of pennies ahead of the Zacks Consensus Estimate of $1.33 but substantially ahead of $1.20 reported in the year-ago quarter. Results benefited from a healthy top-line growth, stronger yen and lower realized investment losses. While operations in Japan continued to be strong, Aflac’s U.S. wing also improved during the second quarter.
Estimate Trend Revision
Over the last 30 days, 9 of the 18 analysts covering the stock have increased their estimates for the third quarter of 2010, while four downward revisions were witnessed. Currently, the Zacks Consensus Estimate for the third quarter is operating earnings of $1.37 per share, which would be up by 9.2% from the year-ago quarter.
The higher number of upward estimate revisions for the third quarter indicates a likelihood of positive trend in the performance of the stock in the near term.
With respect to earnings surprises, the stock has been steady over the last four quarters, with all four positive surprises. The average remained positive at 3.55%. This implies that Aflac has surpassed the Zacks Consensus Estimate by 3.55% over that period.
The upside potential for the estimate in the second quarter, essentially a proxy for future earnings surprises, currently stands at 0.67%.
AFLAC INC (AFL): Free Stock Analysis Report
Zacks Investment Research
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