Why Aflac Incorporated's Upside Could Be Limited

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a look at particularly stock-shaking analyst upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of Aflac  (NYSE: AFL  ) slipped slightly today Barclays Capital downgraded the insurance giant from overweight to equal-weight.

So what: Along with the downgrade, analyst Jay Gelb lowered his price target to $67 (from $78), representing about 8% worth of upside to yesterday's close. So while contrarian traders might be attracted to Aflac's year-to-date price weakness, Gelb's call could reflect a sense on Wall Street that the company's earnings growth remains just too sluggish to trigger a significant rebound.

Now what: According to Barclays, Aflac's risk/reward trade-off is pretty balanced at this point. "We downgrade Aflac to EW from OW because we now expect its operating EPS growth through 2016 (excluding the impact of the yen) to be lower than the life insurance industry median, driven by a lack of margin expansion," said Gelb. "AFL will likely return the majority of annual earnings to shareholders but we anticipate slow EPS growth is unlikely to result in valuation multiple expansion." With Aflac shares off about 10% from their 52-week high and sporting a near-3% dividend yield, however, those short-term concerns might present patient Fools with a juicy long-term opportunity. 

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  • Report this Comment On May 27, 2014, at 2:53 PM, Bdog wrote:

    All well taken in the article. But consider that reporting the opinions may do more harm to the stock than the issues described could ever do. Recall about six or seven years back a California analyst shouted out about the structure of Aflac's bond portfolio and caused the stock to fall to the low teens an a few short days. The realization that the analyst was wrong did not help after the box was opened. But Aflac climbed back in a very consistent manor.

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Brian Pacampara

I take a look at big 10% moves, as well as stock-shaking analyst calls, on a daily basis for The Fool. While I don't believe in active trading, closely monitoring Mr. Market's mood swings can help identify long-term opportunities.

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9/3/2015 4:03 PM
AFL $57.55 Up +0.10 +0.17%
Aflac CAPS Rating: *****