From my watch list, let’s have a short view ofAflac Inc(AFL). It looks undervalued based on the Peter Lynch value, discounted cash flow and is trading below the Peter Lynch earnings line
Aflac Inc (AFL)
Description: The company and its subsidiaries mainly sell supplemental health and life insurance in the United States and Japan. The company's insurance business is marketed and administered through American Family Life Assurance Company of Columbus or Aflac, which operates in the United States as "Aflac U.S." and as a branch in Japan, "Aflac Japan." Aflac's policies are individually underwritten and marketed through independent agents. It continues to diversify its product offerings in both Japan and the United States. Aflac Japan sells supplemental insurance products, including cancer plans, general medical indemnity plans, medical/sickness riders, care plans, living benefit life plans, ordinary life insurance plans and annuities. Aflac U.S. sells supplemental insurance products, including accident/disability plans, cancer expense plans, short-term disability plans, sickness and hospital indemnity plans, hospital intensive care plans, fixed-benefit dental plans, vision care plans, long-term care plans and life insurance products.
Ratios: AFLhas a ROA of 2.38% that is is ranked higher than 94% of the 183 companies in the Global Insurance - Life industry and a ROE of 17.55% that is ranked higher than 96% of AFL’s competitors.
Compared to the history of AFL, 2010 was the best year for ROE when it reached a maximum level of 23.91%. The year 2007 was the best for ROA; it reached the maximum level of 2.7%.
Based on Joel Greenblatt (Trades, Portfolio)’s ROC, the company looks very attractive; the ratio is 967.05 and this is enough to see that is a buy. This level is topping AFL’s history and is ranked higher than 94% of other companies on the same industry.
| Â | Current level | Best level of history | Industry Median |
| ROE | 17.55% | 23.91% | 10.91% |
| ROA | 2.38% | 2.6% | 0.64% |
| ROC | 967.05 | 987.03 | 332.17 |
Financials: The company has a financial strength of 7 out of 10. Cash covers debts enough, with a cash to debt ratio of 0.88, that just three years back (in 2012) was at very low level at 0.23. At these levels, it is outperforming the sector that has an average cash-to-debt level of 2.75. Interest coverage is 14.17 versus an industry median of 7.98.
Compared to history, both cash to debt and interest coverage are at worst levels ever.
| Â | Current level | Best level of history | Industry Median |
| Cash to Debt | 0.88 | No Debts | 2.75 |
| Interest Coverage | 14.17 | 9999.99 | 7.98 |
Growth: Over the last five years, the company had a steady and strong growth rate (per share).
| Revenue | +5.50% |
| EBITDA | +16.00% |
| BookValue | +16.30% |
| EPS | +15.00% |
During the last 12 months these growing rates are facing a pause, confirmed by EPS that declined by 3.60%, EBITDA by 2.90% and revenue by 2.20%.
Price: The stock is trading at about $64 and over the last year, the price rose by+3%. Technically, the stock has been rejected from the resistance at $67 for the second time. The first time happened in April 2008, and the recent one happened in November 2013, and maybe soon it will try again to go over that price.
Currently, the price is down 1.27% from its 52-week high and up 16.88% from its 52-week low. The 200-days moving average price is at $60.26.
The stock looks undervalued at current prices.
The Peter Lynch earnings line gives a fair value of $101.9 with a margin of safety of 37%, the DCF model gives a fair value of $102.48 with a margin of safety of 37% and even the Peter Lynch value is set with a margin of safety of 37%.
Dividend Yield: AFL has a dividend yield of 2.37% with a good dividend payout ratio of 23%. The growth rate is 6.50% over the last five years and 14.90% over the last 10 years. The company has been releasing dividends quarterly since 1998.
Gurus & Insiders: According to Guru Focus, the main guru holding AFL is Bill Nygren with 1.16% of Shares Outstanding or 1.8% of his total assets. He is followed by John Rogers (0.37% of shares outstanding or 1.2% of his total assets) and Jeremy Grantham, who holds 0.03% of shares Outstanding.
During the first months of 2015, AFL has been sold 15 times by Insider. The last one is the Executive Vice President, Mr. Kenneth S. Janke Jr that sold 8,500 shares for a total cost of $544,200. AFL has 79% of institutional ownership and 1% of insiders ownership.
Compounding : Over the last five years of data (starting from December 2010), the company had the following compounding returns :
| Â | Compounding Return (5y-data) |
| EPS (diluted) ($) | 5.73% |
| Book Value Per Share ($) | 11.99% |
| ROE | -5.63% |
| ROA | null |
| Dividends Per Share | 5.64% |
