While people in the U.S. are familiar with Aflac, Inc.’s (AFL, NYSE) memorable (if not annoying) “duck” mascot, most Americans would likely be surprised to know that the company actually does most of its business in Japan. Aflac is the world’s largest underwriter of supplemental cancer insurance, with the largest chunk sold in Japan. The firm also sells other types of insurance, including long-term care, accident, and life. Japanese operations account for around three-quarters of total revenue and profits. Aflac has ample growth opportunities in Japan. Deregulation of insurance sales at banks has opened a new channel for Aflac to promote its products. Sales through banks now generate around 7% of Aflac’s total revenue, and that percentage is expected to grow. In the U.S., business has been hampered by high unemployment—Aflac tends to sell its supplemental policies through the workplace. However, hiring should improve as the year progresses, which should be a plus. For 2010, per-share profits are expected to jump 10% to $5.28 per share. The stock trades at just 9 times the 2010 estimate, a fair price to pay for a company posting double-digit earnings growth. ... The company’s direct-purchase plan has a number of attractive features. Minimum initial investment is $1,000. There are no fees on the buy side. Aflac administers its own plan and has an excellent reputation for quality service for its DRIP (dividend reinvestment plan) participants. The market is overdue for a correction. Aflac will probably pull back 10% to 15% in a correction. However, I would feel very comfortable nibbling on the stock at current prices and buying more aggressively on pullbacks to the mid $40s.
Charles B. Carlson
