Recent Fraud News May Not Have Material Impact on Aflac; Raymond James Upgrades

AFLAC Incorporated AFL was rocked by a scandal earlier this month, with some employees alleging that the company exploited employees, manipulated accounting, and deceived shareholders and customers, according to an Intercept report.

The Analyst

Raymond James analyst Gregory Peters upgraded Aflac from Outperform to Strong Buy, reasoning that the news is unlikely to have any lasting material impact on the company's operations. The analyst increased his price target from $88 to $100.

The Thesis

Aflac responded to the allegations by tabling a report compiled by a special committee of the Board of Directors, Gregory said in a Monday note.

The company's shares are trading at a 40 percent discount to the S&P 500 Index on a relative P/E basis, above the five-year average of 38 percent, Peters said. He also indicated the stock is trading close to the 10-year trough of 1.4 times book value, excluding valuation during the great recession.

Raymond James believes the company is positioned to generate a return on equity of up to about 13 percent in 2018, including hedging costs.

"[W]e continue to have a favorable view of the company's capital management program (including $1.8-2.1 billion in share repurchases, dividend, and opportunistic acquisitions in 2018) which should provide investors with some downside protection," the firm said.

The Price Action

Aflac shares are up over 25 percent over the past year, notwithstanding the 7 percent slide in the aftermath the scandal. Shares traded recently at $87.50.

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