Ricardo Pillai
3 min read
In This Article:
We came across a bullish thesis on Aflac Incorporated (AFL) on Substack by David. In this article, we will summarize the bulls’ thesis on AFL. Aflac Incorporated (AFL)'s share was trading at $105.57 as of May 12th. AFL’s trailing and forward P/E were 16.42 and 15.62 respectively according to Yahoo Finance.
A smiling customer with a health insurance plan, a customer that was successfully acquired thanks to the company's efforts.
Aflac’s first quarter of 2025 was marked by headline volatility driven by non-cash investment losses and currency fluctuations, but the underlying fundamentals tell a more stable and promising story. Adjusted earnings declined 5.7% year-over-year, after the removal of a large investment loss from the calculation, while net earnings plummeted 98.5% because of a $924 million non-cash investment loss. This outsized drop in reported profit creates a misleading picture of the company’s performance. Aflac has significant exposure to Japan, and while it hedges against major currency swings, it does not hedge against smaller or moderate fluctuations. During the quarter, the Japanese Yen strengthened against the U.S. dollar, which is a net positive for long-term fundamentals, as it boosts dollar-reported revenue when Yen earnings are translated. However, in the short term, this creates accounting issues and increases the cost of Aflac’s liabilities in Japan, leading to earnings distortions. Cash from operations fell 30% year-over-year—much less severe than the 98.5% drop in earnings—highlighting how much of the decline was tied to temporary, non-cash factors rather than deteriorating business performance.
Sales growth was healthy, with U.S. operations up 3.5% year-over-year and Japan sales increasing 12.6%, reflecting resilience in core markets despite currency headwinds. While some investors might focus on quarterly results, Aflac’s long-term trajectory remains tied to macroeconomic factors—most importantly, the Yen/USD exchange rate. Historically, trends in cash flow and revenue have followed this currency relationship closely. A sustained strengthening of the Yen would not only improve the company’s earnings power in dollar terms but also enhance reported cash generation. Though this quarter wasn’t spectacular, the strategic picture remains intact, and currency headwinds are more of a timing issue than a structural concern.
Importantly, Aflac’s strong capital allocation remains a point of confidence. In Q1 2025, the company repurchased $895 million of its own stock, reflecting management’s conviction in the long-term value of the business and continuing its shareholder-friendly approach. For investors willing to look past short-term accounting noise, Aflac represents a stable, cash-generative business with upside potential tied to currency normalization. While near-term results may remain volatile, especially due to non-cash charges, the core business is performing, and patient investors could be rewarded as conditions normalize.
