Aflac Incorporated’s AFL shares have gained 16.1% in the past six months, outperforming the Finance sector and the S&P 500. Over this time frame, the Finance sector and the S&P 500 gained 12.2% and 9.2%, respectively. This solid performance prompts investors to question whether it’s the right time to buy, sell, or hold Aflac stock.

AFL's 1-Year Price Performance Comparison

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AFL is well-poised to grow on the back of a strong U.S. business, product launches and upgrades coupled with expanding cash reserves. Let's have a look at the key drivers of AFL.

Key Drivers

Aflac's revenues are driven by strong sales in its U.S. and Japan segments, strategic growth investments, robust persistency rates and enhanced productivity. Sales grew 5.5% and 12.3% year over year for the U.S. and Japan segments, respectively, in the third quarter of 2024. Expansion of offerings like Tsumitasu and cancer insurance sales through the Japan post channel continued to benefit the Japan segment's results. AFL continues to expect growth in sales from third-sector products and cross-selling strategies. The company designs and markets supplemental insurance products across both countries through its Japan and U.S. segments. Increased sales of these products are likely to boost its premiums in the days ahead, which are a key contributor to an insurer’s revenue growth.

Aflac introduces new products and upgrades existing ones to address its customers' changing needs. In July 2024, it partnered with SKYGEN to enhance dental and vision benefits management, leveraging advanced technology and streamlined processes to boost customer satisfaction and product sales. AFL’s Japan unit launched Tsumitasu, which targets young and middle-aged customers. Upcoming cancer insurance products for spring 2025 should further support this metric.

The company also integrates digital solutions into its offerings to align with the ongoing digitization trend. Aflac’s significant investments in digital transformation have improved operational efficiencies and facilitated a shift to digital sales channels, which could continue to support strong profit margins in the days ahead. The expense ratio in the U.S. improved 260 basis points year over year in the third quarter.

A key strength is Aflac’s solid financial position, supported by a strong cash balance and substantial cash flow. As of Sept. 30, 2024, cash and cash equivalents surged 30.2% from the 2023-end level. In the first nine months of 2024, Aflac generated $2.4 billion in operating cash flows. This financial stability enables the company to pursue growth initiatives and engage in prudent capital deployment through share repurchases and dividend payments. AFL recently announced a 16% increase in its first-quarter 2025 dividendto 58 cents per share.

The company is exposed to foreign exchange risk from its operations in Japan. Moreover, competitive market conditions in Japan and the United States might also be a concern. Competition in the third-sector insurance market in Japan and group life and disability lines in the United States could pressure margins in the future. However, we believe that a systematic and strategic plan of action will drive growth in the long term.

Trend in Estimates

The Zacks Consensus Estimate for AFL’s 2024 earnings is pegged at $7.27 per share, indicating growth of 16.7% from the prior-year figure. The same for 2024 earnings has been revised upward in the past 60 days. The consensus mark for 2025 earnings is pegged at $7.05 per share.

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Is Aflac Stock Overvalued?

From a valuation perspective, Aflac appears relatively expensive, which may constrain short-term gains and make it less appealing than other investment opportunities. AFL is trading at a premium compared to the industry’s average. The company's shares are currently priced at a forward price/earnings ratio of 14.67X, which is higher than the median value of 11.41% and the industry’s average of 12.88X.

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Other industry players like Employers Holdings, Inc. EIG and Unum Group UNM are priced at 14.04X and 8.11X price/earnings, respectively.

Conclusion

Aflac has demonstrated strong growth with impressive sales increases in both the U.S. and Japan segments, supported by innovative products like Tsumitasu and advancements in digital transformation. Its robust financial position, reflected in significant cash flow generation and a 30.2% surge in cash reserves, enables continued investments in growth and shareholder returns, including a 16% dividend hike for the first quarter of 2025. However, the company’s valuation is higher compared with the industry’s average. Hence, it might not be a good time to buy this stock and wait for a better entry point.

AFL currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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