Tsumitas And Miraito Will Capture Japanese And US Markets

Key Takeaways

• Targeting younger customers in Japan with new products could boost revenue growth and brand loyalty among underinsured demographics.
  
• Efficient capital management, including share repurchases, enhances earnings per share and reflects strong financial stability and capital deployment.
  
• Aflac faces challenges in earnings stability due to investment losses, foreign currency risks, and reliance on strategic growth initiatives in Japan and the U.S.

Catalysts

Through its subsidiaries, provides supplemental health and life insurance products.

• Aflac's focus on expanding its customer base by targeting younger customers in Japan with products like Tsumitas and Miraito could drive future revenue growth through increased sales volume and brand loyalty among a traditionally underinsured demographic.
  
• The launch of the new cancer insurance product in Japan, Miraito, and its positive early reception, holds potential for increased revenue, capitalizing on Aflac's market leadership in cancer insurance.
  
• Aflac's strategy in the U.S. to focus on high-margin group life and disability products, along with dental and vision insurance, aligns with maintaining strong pretax margins and increasing net earned premiums, supporting stronger financial performance.
  
• Aflac's commitment to efficient capital management, including significant share repurchases, supports earnings per share (EPS) growth and shareholder returns, reflecting robust cash flow generation and capital deployment efficiency.
  
• The continued strong capital generation and robust investment income, despite challenging market conditions, aids in maintaining strong financial stability and supporting ongoing growth and operational investments.

Aflac Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Aflac's revenue will grow by 2.3% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 21.3% today to 20.7% in 3 years time.
• Analysts expect earnings to reach $3.7 billion (and earnings per share of $7.71) by about May 2028, up from $3.6 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 15.9x on those 2028 earnings, down from 16.0x today. This future PE is greater than the current PE for the US Insurance industry at 14.4x.
• Analysts expect the number of shares outstanding to decline by 4.53% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.21%, as per the Simply Wall St company report.

Aflac Future Earnings Per Share Growth

Risks

• Aflac experienced a significant impact on net earnings per diluted share due to net investment losses, which could affect future profitability and market confidence in its earnings stability.
  
• Growth in Aflac Japan is partially dependent on acquiring younger customers through products like Tsumitas, which presents a risk if these efforts do not yield the expected results, potentially impacting long-term revenue growth.
  
• Aflac's U.S. market growth relies on prudent expense management and strong underwriting discipline, making the business vulnerable to unexpected shifts in operating costs or underwriting losses, which could adversely affect net margins and profitability.
  
• The company has experienced pressure on net investment income, particularly due to lower floating rate income, which might continue to be a headwind for earnings if interest rates remain unfavorable.
  
• Aflac's exposure to foreign currency risks, particularly with the yen, can lead to fluctuations in its earnings and capital ratios, potentially impacting shareholder returns and financial stability.

Valuation

• The analysts have a consensus price target of $105.308 for Aflac based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $120.0, and the most bearish reporting a price target of just $94.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $18.1 billion, earnings will come to $3.7 billion, and it would be trading on a PE ratio of 15.9x, assuming you use a discount rate of 6.2%.
  
• Given the current share price of $105.9, the analyst price target of $105.31 is 0.6% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.