Aflac’s (AFL) third quarter earnings came in modestly ahead of the Zacks Consensus Estimate due to improved investment yields and a favorable dollar/yen exchange rate. Higher annual premiums across the U.S. and Japan, healthy capital ratios, credit rating stability and modest improvement in fair value of investments were among other positives.
Moreover, the recent dividend appreciation coupled with the resumption of its stock buyback program reflects Aflac’s fair liquidity while retaining investors’ confidence. However, higher operating expenses and a decline in annualized ROE partially dampen the positives.
Overall, we believe a stable economy in the long run will gather momentum and negate interest and currency risk, thereby providing more profitable investment opportunities for Aflac. Our six-month target price of $64.00 per share equates to about 11.5x our earnings estimate for 2010.