Aflac tops Q2 Operating EPS view, reaffirms FY16 outlook

The shares of the insurance service provider Aflac (NYSE: AFL) recorded a new yearly high last week, following the announcement of fiscal 2016 second-quarter earnings that exceeded the Wall Street estimates.

The revenue, however, missed the Zacks estimate by about $50 million. This may restrain the share price from rising too fast.

However, given the fiscal 2016 sales outlook affirmation and the declaration of the third-quarter cash dividend, we believe that the share price would consolidate and move in an upward trajectory in the current quarter. The stock finished the Monday’s trading session at $71.58.

The Columbus, Georgia-based fortune 500 company reported a fiscal 2016 second-quarter revenue of $5.44 billion, up 2.8% from $5.29 billion in the second-quarter last year. Aflac’s Q2 revenue missed Zacks estimate of $5.5 billion. During the second-quarter, the net earnings of the company, having operations in Japan and the US, declined $25 million to $548 million, from $573 million in the second-quarter last year. On a per share basis, the earnings remained flat year-over- year at $1.32.

Aflac

For the quarter ended June 2016, the operating earnings of the supplemental insurance policy provider increased 8.6% to $707 million, from $651 million in the quarter ended June 2015. The second quarter operating earnings of $1.71 per share was higher the Zacks estimate of $1.68 per share. Furthermore, the Q2 2016 earnings also rose 14% above the Q2 2015 earnings of $1.50 per share.

For the fiscal 2016 third-quarter, Aflac anticipates earnings to be between $1.58 and $1.86 per share. The outlook is based on the assumption that the exchange rate of the USDJPY pair would stay between 100 and 110 during the quarter.

For the full year 2016, the insurer, recognized as the most ethical company for the tenth consecutive time, reaffirmed its full year 2016 non-GAAP operating earnings outlook in the range of $6.17 to $6.41 per share.

The company also declared a third-quarter cash dividend of $0.41 per share, payable on September 1 st , 2016. Thus, fundamentally, there is negligible chance for the share price to decline in the current quarter.

The stock has a firm support at 69. Unable to cross the resistance at 74, the stock receded and bounced off the 50-day moving average, which now acts as support.

Considering the decline in the RSI, we believe that the price would still break the moving average to test the support at 69, before crossing the resistance at 74. Irrespective of whether it tests the support or not, the stock price is having a high probability of making a new 12-month high.

Thus, it is better to speculate with a one touch call option contract with a strike price of about 78 or lower. If the expiry date falls in the last week of August, it would be highly beneficial to the trader.

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