Prudential trades for 9.1 times 2012 earnings with 10% forward growth projected. This is comparable to AFLAC’s numbers, with a slight edge going to AFLAC.
Hartford trades at 8.5 times 2012 earnings, with 8.8% forward growth projected. However, Hartford’s success is highly dependent on the continued improvement of the equity markets as well as the company’s own restructuring.
As I mentioned already, I find AFLAC’s expected growth to be too low. I believe that the company’s U.S. business will grow rapidly over the next several years. The trend in primary insurance seems to be towards less and less coverage, further incentivizing people to purchase supplementary coverage.
Regardless of whether I’m correct, AFLAC is simply too cheap to ignore right now. At just 7.7 times earnings, AFLAC is trading at a tremendous discount. I should point out that one of the major reasons that insurance companies are trading at such a low P/E is the low interest rates that these companies rely on for income.
While the prevailing interest rates may stay low for several years to come, they won’t forever. When interest rates begin to rise again, so will the valuation of AFLAC and its peers, and this company should trade for around 15 times earnings, or double what it currently does. In this way, AFLAC may be one of the most underrated plays on the continuing economic recovery.
The article This Insurer Belongs in Your Portfolio originally appeared on Fool.com and is written by Matthew Frankel.
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