The stock of Aflac (NYSE:AFL, 30-year Financials) is estimated to be fairly valued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $51.2186 per share and the market cap of $35.2 billion, Aflac stock gives every indication of being fairly valued. GF Value for Aflac is shown in the chart below.
Because Aflac is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth, which averaged 4.5% over the past five years.
Since investing in companies with low financial strength could result in permanent capital loss, investors must carefully review a company's financial strength before deciding whether to buy shares. Looking at the cash-to-debt ratio and interest coverage can give a good initial perspective on the company's financial strength. Aflac has a cash-to-debt ratio of 0.65, which ranks worse than 74% of the companies in Insurance industry. Based on this, GuruFocus ranks Aflac's financial strength as 5 out of 10, suggesting fair balance sheet. This is the debt and cash of Aflac over the past years:
It poses less risk to invest in profitable companies, especially those that have demonstrated consistent profitability over the long term. A company with high profit margins is also typically a safer investment than one with low profit margins. Aflac has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $22.1 billion and earnings of $6.7 a share. Its operating margin is 0.00%, which ranks in the bottom 10% of the companies in Insurance industry. Overall, GuruFocus ranks the profitability of Aflac at 6 out of 10, which indicates fair profitability. This is the revenue and net income of Aflac over the past years:
Growth is probably the most important factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long term performance of a company's stock. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of Aflac is 4.5%, which ranks in the middle range of the companies in Insurance industry. The 3-year average EBITDA growth rate is 4.8%, which ranks in the middle range of the companies in Insurance industry.
Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) to its weighted cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Aflac's ROIC was 3.46, while its WACC came in at 7.26. The historical ROIC vs WACC comparison of Aflac is shown below:
In conclusion, the stock of Aflac (NYSE:AFL, 30-year Financials) is estimated to be fairly valued. The company's financial condition is fair and its profitability is fair. Its growth ranks in the middle range of the companies in Insurance industry. To learn more about Aflac stock, you can check out its 30-year Financials here.
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