Companies with interests in the insurance industry like Aflac, Inc. (NYSE:AFL) thrive in periods of sustained economic growth and rising interest rates. However, the escalating disputes over trade tariffs and geopolitical confrontations cast a gloomy shadowy on growth. This latter situation is what the current insurance industry is facing. Nonetheless, there seems to be room for growth.
A strong Q1 FY2019 for Aflac
Aflac reported the earnings results for the first quarter 2019 and the numbers were nothing short of impressive. Notably, the EPS value of $1.12 beat consensus estimates by a whopping 6.7%. The EPS further registered a 6.7% year over year growth. The higher EPS comes on the back of stronger revenues which grew 3.6% from the last quarter. In particular, the revenue clocked $5.7 billion compared to $5.5 billion registered during Q1 FY2018.
Clearly, the company has favorable net investment income and benefit ratios which imply sound business. Further, the company is under sound management, although it appears to apply its capital conservatively. As such, the company has a long track record of giving dividends to investors due to the high liquidity.
Aflac Japan lagging behind
While other markets outperformed the industry, Aflac Japan registered losses. To be sure, total revenues slumped 1.6% y-o-y. As a result, premium income declined 2.5% to $3.2 billion. However, this was offset in part by investment income which rose 3.7% to $610 million. On the contrary, Aflac US added 2.2% y-o-y to its total revenues to $1.6 billion. Consequently, premium income grew 2.4% to $1.5 billion.
Riding on the strong revenue performance, AFL stock had rallied 13% year-to-date as at the close of trading on May 14. Analysts credit the rally on favorable guidance and sustained profitable operating performance. In the one month period since the earnings release for Q1 FY2019, the stock has grew 5.8%. As such, it is clear that the tailwinds pushing the stock up are a conflation of reasons including strong revenue performance and a long term attitude from investors.
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