Custom Cancer Insurance And Digital Underwriting Will Drive Future Expansion

Key Takeaways

• Product innovation and digitalization expand Aflac's market reach, support topline growth, and improve operational efficiency and customer engagement.
  
• Investment portfolio diversification and new distribution strategies enhance earnings stability and drive sustained long-term income growth.
  
• Heavy reliance on Japan and challenging investment returns, along with weak U.S. sales growth, pose ongoing risks to Aflac's revenue, earnings, and margin stability.

Catalysts

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

• The successful launch of new, customizable cancer insurance (Miraito) in Japan, coupled with strong early sales across all distribution channels-including banks and Japan Post-positions Aflac to capture growing demand for supplemental health coverage among aging and younger consumers, supporting topline revenue and premium growth.
  
• Increased adoption of digital underwriting, customer-facing Gen AI, and digital human avatar initiatives in both Japan and the U.S. is expected to lower long-term operational costs and improve customer engagement, with the potential to materially expand net margins through enhanced efficiency and better scalability.
  
• Heightened consumer awareness of financial health risks and rising medical costs-combined with product innovation (such as modular coverage, new children's cancer policies, and expanded group dental/vision)-broadens Aflac's addressable market and increases cross-sell opportunities, supporting both revenue and persistency.
  
• Ongoing diversification and optimization of Aflac's investment portfolio, including the proactive management of yen
• and USD-denominated assets, positions the company to better withstand interest rate cycles and enhance investment income stability, reducing earnings volatility and supporting sustainable bottom-line growth.
  
• Strategic expansion in digital direct-to-consumer channels in the U.S., aggressive agent recruitment in Japan, and new partnerships with large institutions (like state-run disability leave programs) enable Aflac to extend market reach and drive sustained earned premium and fee-based income growth over the long term.

Aflac Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Aflac's revenue will grow by 5.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 15.3% today to 20.4% in 3 years time.
• Analysts expect earnings to reach $3.8 billion (and earnings per share of $7.92) by about September 2028, up from $2.4 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 16.7x on those 2028 earnings, down from 23.3x today. This future PE is greater than the current PE for the US Insurance industry at 14.3x.
• Analysts expect the number of shares outstanding to decline by 3.73% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.83%, as per the Simply Wall St company report.

Aflac Future Earnings Per Share Growth

Risks

•  Net earned premiums in Japan, Aflac's largest and most profitable market, continued to decline year-over-year (down 1.1% excluding one-off effects), and management's guidance recognizes ongoing negative premium growth of -1% to -2% for the foreseeable future, which could constrain future revenue and earnings growth.
  
•  The company is experiencing increased technology and expense ratios in Japan (up 280 basis points year-over-year), largely due to digital transformation initiatives; if these investments do not translate into commensurate productivity gains, net margins may remain under pressure.
  
•  Aflac's significant exposure to Japan subjects it to persistent currency fluctuations and economic uncertainty-yen depreciation directly impacts reported USD earnings and the efficacy of capital deployment (including 65% of debt held in yen), increasing volatility in both reported revenue and earnings per share.
  
•  Variable net investment income was materially below long-term targets in the quarter (down 10.5% in yen terms for Japan), highlighting the ongoing risk from persistent low global bond yields and challenging investment environments, which could lead to lower investment returns and net margins over the long-term.
  
•  Persistent sluggishness in U.S. sales (only a 2.7% year-over-year increase), still not at historical growth rates, and dependence on agent recruitment and effectiveness in the traditional distribution channel, points to execution risk; failure to reinvigorate U.S. sales growth may limit future revenue expansion and earnings diversification.

Valuation

• The analysts have a consensus price target of $108.077 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 $124.0, and the most bearish reporting a price target of just $99.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $18.5 billion, earnings will come to $3.8 billion, and it would be trading on a PE ratio of 16.7x, assuming you use a discount rate of 6.8%.
• Given the current share price of $106.28, the analyst price target of $108.08 is 1.7% higher. 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.