This duck is worth at least $70
Chad is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Aflac might be one of the most under appreciated companies I've come across in the last several years. In the worst of the correction of 2008-2009 you could buy this solid, stable company with growing earnings and dividends for around $12 a share. This was at the same time the company was paying a dividend that gave the stock a yield of over 7%. Now of course to do this you had to look past the fact that everyone believed the entire banking system would fail which would eliminate a large chunk of Aflac's investment portfolio which would crush the company and force them into bankruptcy. Yeah, I loved Aflac back then too so why didn't I buy more? Well even the best intentions can be marred by fear of the unknown. So kicking ourselves for not buying at $12 or $20 or $25 is one thing, but why do I think Aflac (NYSE: AFL) is worth at least $70?
If you ask most people to describe the perfect stock they will probably say: it has good earnings growth, pays a dividend, the dividend is raised regularly and I can buy it for less then it's really worth. Well (and pardon the bad pun, but) if it walks like a duck and talks like a duck, it's probably a duck. Can you say Aaaaflac! Just look at the numbers:
15%+ earnings growth over the last 10 years
18%+ dividend growth over the last 10 years
That is impressive no matter how you slice it. What about future growth? What about the dividend? let's compare Aflac to two other respectable companies that have growing earnings and dividends, PepsiCo and Procter & Gamble.
|PepsiCo||Current Price: $64.65||P/E on '12 earnings: 14.15||Expected Growth Rate: 7.6%||Yield: 3.19%||Off 52 wk High: -10.07%|
|Procter & Gamble||Current Price: $65.78||P/E on '12 earnings: 15.71||Expected Growth Rate: 8.77%||Yield: 3.19%||Off 52 wk High: -2.81%|
|Aflac||Current Price: $44.08||P/E on '12 earnings: 6.62||Expected Growth Rate: 10.93%||Yield: 2.99%||Off 52 wk High: -25.97%|
Anything jump out at you from this chart? Aflac is the only one trading at a discount to it's growth rate. It's expected growth rate is higher then the other two, it's dividend is nearly the same. It is also the one that is more then 25% off it's 52 week high. To put this opportunity in even more stark contrast look at this comparison:
If PepsiCo, Procter & Gamble and Aflac all traded at a P/E equal to their growth rate they would be at the following prices:
PepsiCo: $35 (a 45.8% decline from current prices)
Procter & Gamble: $37 (a 43.7% decline from current prices)
Aflac: $73 (a 65.6% increase from current prices)
So 3 different companies, and if they all sold at "fair value" which would be equal to their growth rates two would decline by more then 40% and one, Aflac would increase by over 65%. Solid company, good earnings growth, good dividend, growing dividend and a potential for a 65% gain just to reach fair value. Sounds like good insurance (sorry had to do it) against the ups and downs of the market to me.
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