Earnings Preview: AFLAC

AFLAC (AFL) reports tomorrow. Here’s a preview from AP:

OVERVIEW: Once one of only two life insurers in Japan, Aflac now faces a very competitive market in that country, racked by intensifying regulatory scrutiny and lagging consumer confidence.
Because more than two-thirds of Aflac’s $13.2 billion in insurance policies in force are in Japan, the Columbus, Ga.-based supplemental insurer is heavily exposed to what happens there.
Last quarter, Japanese regulators summoned data on how much Japanese insurers paid out in claims. While Aflac wasn’t as bad as most other insurers, regulators found insurers underpaid clients when they submitted claims.
Even though the financial effect on Aflac from the study is minimal, Goldman Sachs analyst Joan H. Zief said the issue underscores how regulatory scrutiny is affecting the market for insurance in Japan.
Aflac sells supplemental insurance, or policies that cover perils not insured under typical coverage. This is an important product in Japan because the national health care system is under pressure so people are turning to private insurers for supplemental coverage.
This market is weakening as new competitors enter the industry. Sales in Japan fell 8.8 percent last year, and Aflac predicted sales will continue declining in the first half of the year.
EXPECTATIONS: Analysts polled by Thomson Financial expect profit of 79 cents per share in the first quarter. They forecast revenue to rise 5 percent to $3.73 billion.
ANALYST TAKE: Wachovia Securities analyst John Hall expects Aflac to report higher profit margin in Japan despite lower sales. He predicts Aflac will say lower spending on information technology and marketing initiatives will offset sales weakness.
Nevertheless, he’s skeptical of Aflac’s forecast that sales in Japan will turn around in the second half.
Banc of America Securities analyst Tamara K. Kravec said any commentary on the overcrowded health and life insurance market in Japan will be crucial.
“The market environment in Japan is not smooth sailing,” she said. “Investors will continue to focus on assessing the competitive environment in Japan and what the first quarter will reveal about sales trends and the competitive environment.”

The stock is going for 13 times next year’s earnings.

Posted by on April 23rd, 2007 at 2:23 pm


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