Financial stocks are still out of favor versus the rest of the equity market. This is an opportunity for an astute investor. AFLAC's revenue base is solid and expanding, despite recent slowing. But, with the economic expansion under way, this company has a lot of potential for its stock to move much higher.
AFLAC. You have seen their commercials on television many times. They are the commercials with the white duck doing yoga, or doing some other kind of things that white ducks do not normally do. They issue reinsurance as well as the insurance for disability that is advertised with the duck.
Their earnings and other numbers are impressive and steady. My kind of company. I like a steady flow of revenue and earnings. And, I like to pay a discounted rate for those earnings. And, that is exactly where this company falls in to place. Here is the revenue, net profit and earnings-per-share over the past several years for your scrutiny:
2011: 22,171.0 1,964.0 4.21
2012: 25,364.0 2,866.0 6.14
2013: 23,939.0 3,158.0 6.80
2014: 22,728.0 2,951.0 6.54
2015: 20,872.0 2,533.0 5.88
The entire world saw a decline in revenue from 2013 - 2014. I am not giving this company a way out or excuse because of their drop in earnings. But, the decline in revenue was due to the economic landscape more than anything the company was not able to accomplish. The decline was limited, though. Their profit decline was contained as well. But, revenue had continued to decline into 2015. That was turned around for 2016, and will be formalized once their earnings are reported in the next few weeks. The expectation is that the earnings come in a little over $6 per share. In the meantime, the stock is trading just shy of $70 per share, a little more than 11 times earnings. That makes this company a bargain buy and with the economic environment improving there is likely to be some good movement upward in earnings and, by consequence, upward movement in stock price.
First, at the earnings per share ratio, this stock is trading well below average. The average is 15.5 ratio. However, the current stock market is trading above 25. This is an outlier. There is likely to be an adjustment downward in the overall price of equities bringing the price of stocks in line with the averages from the past few decades. This may very well bring the price of AFLAC down to an even lower price-to-earnings ratio presenting an even more compelling reason to pick up the stock.
The economy in the United States is expanding. This will present even more opportunities for this company to increase its revenue. At the same time, being an insurance company, AFLAC has the ability to create more profits given its investment books and its obligations for paying out claims. As the economy expands, AFLAC’s ability to increase its revenue expands with it.
A rising tide lifts all boats is an expression that has been used with investing for some time. The economy of the United States is rising and stocks are heading higher as well. AFLAC will move higher. But, financial companies have moved higher at a slower pace than the rest of the overall market. Remember, the EPS ratio is now above 25 whereas the average is 15. AFLAC, despite being a profitable company with a steady base of revenue, is well below that. In fact, the ratios is less than half. But, as the economy continues to rise, this stock will do the same. And, it has the potential to rise even further as the stock catches up with the rest of the equity market.
Get into this company for your portfolio for a lot of reasons. It is a solid earning company. It has a lot of upward potential with its stock price. And, the rest of the investing world will start to favor the financial sector once again, bringing the ratio for this stock into much more favorable levels.