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On Dec 5, we reiterated our recommendation on Aflac Inc. (AFL) at Neutral based on its expense management and stable core capital strength, paving way for expanded capital deployment. However, consistent weakness in Japan raises operational risks.

Why the Retention?

Estimates for Aflac have witnessed minor corrections since the company reported its third-quarter 2013 results on Oct 29. The company’s earnings and revenues of $1.47 per share and $5.89 billion, respectively, were in line with the Zacks Consensus Estimate.

However, the top and bottom line lagged the year-ago results, owing to decelerated sales from WAYS products along with a weak average yen and investment income in Japan. The sluggishness in the U.S. market also limited growth in new sales.Conversely, total acquisition, operating, benefits and claim expenses decreased from the prior-year quarter.

Following the release of the third-quarter results, the Zacks Consensus Estimate for 2013 inched down 0.3% to $6.18 per share in the last 60 days. Moreover, the estimates for 2014 fell 2.3% to $6.39 per share during the same period. On a year-over-year basis, earnings are projected to decrease 6.4% in 2013 but nominally grow by 3.5% in 2014.

Overall, with the Zacks Consensus Estimate for both 2013 and 2014 showing no clear directional pressure on the stock in the near term, the company now has a Zacks Rank #3 (Hold).

Aflac’s growth is sustained by its modest earnings guidance, healthy capital ratios and stable ratings. Incremental share buybacks and the latest dividend hike also instil confidence in investors. Nonetheless, intense global competition coupled with sluggish interest rate environment and currency fluctuations deter the desired upside in the stock.

Overall, Aflac’s investment restructuring, new product introduction and the Japan Post agreement should help it gather momentum in the long run, negate interest and currency risks and provide more profitable investment opportunities. Management expects earnings growth to rebound 2015 onwards.

Other Financial Stocks That Warrant a Look

While we remain on the periphery in the near term for Aflac, better-ranked stocks in the financial sector include Employers Holdings Inc. (EIG), Euronet Worldwide Inc. (EEFT) and FleetCor Tech Inc. (FLT). All these stocks sport a Zacks Rank #1 (Strong Buy).

 
AFLAC INC (AFL): Free Stock Analysis Report
 
EURONET WORLDWD (EEFT): Free Stock Analysis Report
 
EMPLOYERS HLDGS (EIG): Free Stock Analysis Report
 
FLEETCOR TECH (FLT): Free Stock Analysis Report
 
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