Aflac (AFL) is our hot stock of the week and earns an Attractive rating. Since 2009, Aflac has grown after-tax profits (NOPAT) by 21% compounded annually. The company currently earns a return on invested capital (ROIC) of 16%, which places it in the top quintile of all companies I cover.
Aflac has also generated positive economic earnings every year of my model, which dates back to 1998. Despite its impressive profitability, Aflac remains valued as a company with very limited growth prospects. At its current price of ~$58/share, AFL has a price to economic book value (PEBV) ratio of 0.9.
This ratio implies that the market expects Aflac’s NOPAT to permanently decline by 10% for the remaining life of the corporation. Given Aflac’s track record of profit growth, this expectation seems rather pessimistic. Currency concerns I highlighted in April do remain an issue, but there is still plenty of upside in Aflac.
Kyle Guske II contributed to this report.
Disclosure: David Trainer and Kyle Guske II receive no compensation to write about any specific stock, style, or theme.