Aflac shares have logged a strong multi year run, and the question now is whether the returns the business earns on its capital are enough to justify where the stock trades today. Investors are weighing that capital efficiency story against fresh signals about the insurer's balance sheet strength and risk profile.
- Over the past 5 years Aflac has delivered a total shareholder return of 135.8%, which puts a lot of weight on whether its underlying capital returns can keep supporting that kind of compounding.
- AM Best's recent affirmation of Aflac's A+ Financial Strength Rating and related credit marks points to a balance sheet and risk program that may support continued reinvestment of capital on favorable terms.
- What if you looked at Aflac through its earnings instead? See why Aflac's 12.4x P/E tells a different valuation story.
The issue now is whether the returns Aflac earns on its capital are strong and durable enough to make the current share price look sensible on that measure.
If you want to test the same question about capital returns and balance sheet strength beyond Aflac, run the rule over a wider set of 32 resilient stocks with low risk scores.
Is Aflac a Bargain on Excess Returns?
The Excess Returns model looks at how much profit Aflac generates above its cost of equity and what that could be worth over time. On this view, the insurer is modeled with book value of $60.35 per share and stable book value of $62.25 per share, while stable EPS is set at $8.42 per share based on future Return on Equity estimates from 6 analysts.
That earnings power sits against a cost of equity of $4.50 per share and an excess return of $3.92 per share, with an average Return on Equity of 13.53%. The gap between those returns and the capital charge feeds into an estimated intrinsic value that the Excess Returns projections place substantially above the current share price of $119.97. Because AM Best recently affirmed Aflac's A+ Financial Strength Rating with a stable outlook, the rating support helps explain why the model credits the group with the capacity to keep earning excess returns on its capital. Find out what Aflac could be worth using our Excess Returns estimate.
The Aflac Narrative: What Would Justify Today's Price?
Simply Wall St Narratives pick up where the earlier valuation puzzle for Aflac leaves off. They lay out in plain terms which assumptions about future growth, profitability and earnings would need to hold for the shares to be worth significantly more or less than today’s price. Each Narrative treats Aflac's implied fair value as a hypothesis about the business that can be tracked over time, rather than a one off snapshot, and they are available on Simply Wall St's Community page.
One of the top community narratives on Aflac: roughly fairly valued
"The focus now shifts to how Aflac’s repositioned investment portfolio and capital strength support earnings when premium growth is soft…"
Discover why this Narrative puts Aflac at roughly fairly valued.
One more Aflac check that sits beside the share price
Price, book value and excess returns only tell you so much if you do not know who is steering Aflac and how their decisions are rewarded or restrained. See who runs Aflac and how they are paid.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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