Aflac Incorporated (AFL)

Total return at 5 years: 5.2%/year = 2.9% appreciation + 2.3% dividend. The target price ($135) is ex-dividend; the $15 in dividends collected over 5 years are added separately.

By both methods, the value today (DCF $200 · Multiples $121) exceeds the market price ($117).

Today — fairly valued: at $117 trades ~3.2% below its value discounted to today (~$121); the discount is positive but does not reach the margin of safety we require (≥38%).

At 5 years — En valor: the target price ($135) plus dividends yield between the 4% floor and the 10% average return — a reasonable return, though without the margin of a great investment.

The bridge: the return at 5 years exceeds the risk-free rate (4.5%) — but the discount does not reach the required margin of safety (≥38%). To require a 15% annual return, it would need to be bought at ~$77.

Educational / informational. Does not constitute investment advice.

The inverse approach: instead of projecting growth to obtain the value, the market price ($117) is taken as given and it solves for what annual owner-earnings growth would need to hold for 5 years for the present value —at the method's rate (4.5%, no-growth terminal)— to equal that price. It is the disconfirmation test: the expectations the price already pays for, contrasted against the method's projection.

The market discounts less growth (-8.1%/year) than we project (3.3%/year) → if the base case holds, there is margin: perception is more pessimistic than the estimated reality.

That growth implies ~$2.6 bn of owner earnings in year 5 (vs ~$4.6 bn of our base case). It recalculates if the DCF assumptions are edited.

A bank is valued on equity (P/E × common earnings + price/tangible book), not EV: deposits and debt are funding. It returns capital via dividend + buyback —the buyback reduces the share count, so earnings per share grow faster than aggregate earnings—. Total return adds the dividend collected along the way. In edit mode, the metric, shares, dividend, and exit multiple can be adjusted.

Year 0 = TTM as of Jun 30, 2026 (US$18.07 billion in revenue, XBRL). The tags us-gaap:OperatingIncomeLoss (latest figure 2023-09-30) and us-gaap:DepreciationAndAmortization (latest figure 2025-12-31) are out of sync with the rest of the core and are not used to compute the TTM margin; the ownerEarnings `ebit` uses TTM pre-tax income (US$5.79 billion, current tag) as a proxy, and depreciation is taken from the most recent fiscal year (US$36M, FY2025, immaterial). The scenario metric is not GAAP net income —volatile due to realized investment gains/losses (net loss of US$572M in 2025 vs. a gain of US$1.3 billion in 2024)— but the normalized adjusted earnings the company itself reports: FY2025 adjusted US$4.0 billion + 1H2026 US$1.784 billion − 1H2025 US$1.863 billion = TTM ~US$3.92 billion. The guidance from the Q2 2026 8-K (Item 2.02) indicates: Japan at the top of the 60-63% benefit-ratio range for 2026, and the U.S. growing premiums just below the guided 3-6% range (previously guided to the low end). The share-count path (-5.5% to -4.3% annually, decelerating) reflects the net reduction observed in the XBRL (FY22→TTM: -6.1%, -5.6%, -5.3%, -5.5% year over year) and is identical across the three scenarios, per §6.

Today's multiple compresses on its own going forward as the metric per share grows (accelerated by the buyback, which reduces the share count). The exit multiple at 3 years is higher than the terminal at 5 years —at 3 years there is more growth still ahead—. Total return adds the dividend collected; the required return is applied to the base scenario.

They are valued separately, with their own rationale, and are not incorporated into the base or the verdict (they are excess return). When assigning them value — in Editmode —, the total with optionalities updates live, without moving the base.

The verdict, the base CAGR, and the margin of safety are always calculated on the base; optionalities do not alter them (with optionalities at $0 they do not move).

Each card fixes a required annual return and answers: if the business is worth $135 in 5 years, what is the maximum that can be paid today to obtain that return? Since it now trades at $117, the margin of safety is how much cheaper the market is than that maximum. The three thresholds: 4% covers inflation (the floor), 10% is the long-term average return, and 15% is the level of a great investment.

With a target price of $135 in 5 years plus $15 of dividends collected (the dividend adds to the return, not to the price) and a required return of 4.5% annually, the maximum to pay today is $121. Against the current market price ($117), the margin of safety is 3.2% (trades below the maximum → there is margin) and the total return at that price would be 5.2% annually.

• Multiple above the band. At ~15×x TTM adjusted earnings, the stock trades above the ceiling (14x) of the protection-insurer band.
• Dividend covered with room to spare. The current yield (~US$2.44/share on US$117.21) is covered several times over by adjusted earnings.
• Moderate expected return. The projected 5-year total return in the base case is modest, reflecting an entry price that already recognizes much of the business's quality.
• Sensitivity to the exit multiple. With a low-terminal-growth business (~3-4%), value depends more on the assumed multiple than on earnings growth.

• ROE above the bar. Adjusted ROE ex-FX of 16.6% and GAAP-minus-AOCI ROE of ~13%, both above the method's 10% reference.
• Noisy investment-driven earnings. GAAP earnings swing sharply on realized investment items (net loss of US$572M in 2025 vs. a gain of US$1.3 billion in 2024); adjusted earnings are used as the base.
• Robust regulatory capital. ESR ~226-240% and combined RBC >600% provide ample cushion against market or credit fluctuations.
• Limited reinvestment runway. Organic growth is modest (Japan contracts in yen, the U.S. grows low single digits); nearly all excess capital is returned rather than reinvested.

Annual levels from the official filing (10-K); the % over each bar is the year-over-year (YoY) growth vs the prior year.

The four indicators reflect the operating engine of a protection insurer: persistency measures how much premium in force is retained year over year (key to future revenue), annualized U.S. new sales show the pace of origination, and annual buybacks quantify the main capital-return channel, which has grown steadily since 2023 and is today the dominant driver of earnings-per-share growth, far outpacing organic growth in the underlying insurance business.

The % are the annual (year-over-year) growth: each year —historical and projected— vs the prior one; the TTM (trailing 12m) vs the TTM of a year ago, to avoid overlapping windows. The historicals are exact figures from the official filings; the projected years come from the year-by-year model (the intermediate years without their own series are interpolated between the anchors). The projected columns (+1y…+5y) are 12-month windows counted from the TTM close (30-jun-2026): the projection starts from the most recently reported data, not the fiscal year. The projected base is realistic and unbiased — the risk discount is applied at the end, via the required return. The rationale for each metric is in the (i).

• U.S. guidance trimmed. The company now expects U.S. premium growth "just below" the guided 3-6% range, versus prior guidance pointing to the low end of the range.
• Japan premium contraction. Yen-denominated net earned premiums fell 3.7% in the quarter due to external reinsurance and policies reaching paid-up status.
• Reinsurance lever. Aflac Japan expanded its internal reinsurance target to up to 30% of FSA reserves, freeing capital that can sustain ROE even with flat premiums.
• Buybacks as the EPS driver. The reduction in share count (~5% annually) is the dominant driver of earnings-per-share growth, more than business growth.

• Geographic concentration. 53% of adjusted earnings and 76% of assets depend on Japan, a mature market with low rates and yen-denominated premiums contracting.
• Stable persistency. 93.1% in Japan and 79.2% in the U.S. in 2025, practically unchanged year over year — solid evidence of customer retention.
• Dependence on external distribution. A significant portion of new sales in Japan runs through Japan Post Group and partner banks; independent agents dominate in the U.S.
• Non-discretionary niche product. Third-sector supplemental insurance (cancer, medical) fills a gap that Medicare/primary insurance does not cover, giving demand recurrence.

• !Book value compounding+6%/yr · $55/share ex-AOCI · core ROE 13%
• ✓Float return (investment income)$3.7 bn on $64.3 bn of float
• ✓Statutory solvency (risk-based capital)6.00× of the authorized minimum
• ✓In-force persistency92.7%

A traffic-light interpreted by the method (not generic): float (negative WC) adds up, capex is judged by incremental ROIC (malinvestment test), and a lender is not subjected to corporate solvency. The (i) shows the derivation of each number.

• Very solid regulatory capital. ESR ~226-240% (with USP) and combined RBC above 600%.
• Uncommitted holding-company liquidity. US$3.3 billion of uncommitted liquidity at the parent, US$2.3 billion above the internal minimum of US$1,000 million.
• Leverage within target. Adjusted leverage of 21.8%, within the company's 20-25% target range; ~63% of debt is yen-denominated as a hedge for the Japanese business.
• Private-credit exposure. Part of the investment portfolio is in middle-market loans and private credit; its quality has held up well but is a source of tail risk in an adverse credit cycle.

• CEO tenure. Daniel P. Amos has been CEO since 1990 and Chairman since 2001, more than 35 years at the helm — strategic continuity, though also succession risk disclosed by the company itself.
• Capital discipline. Buybacks and dividends returned US$4.7 billion in 2025, funded with excess regulatory capital instead of new debt.
• Transparency about the cyber incident. The company discloses the June 2025 incident and its scope (~22.65 million individuals) in its risk factors, though the regulatory outcome remains open.
• 43 years of dividend increases. The board extended the streak in 2026, a signal of long-term commitment to shareholder returns.

• Broad analyst coverage and extensive institutional following — there is no gap of missing buyers that would explain a discount.
• Consistent execution: no relevant negative EPS surprises or recent restructurings that would generate motivated selling.
• The market appears to recognize the quality of the buybacks and excess capital, pushing the multiple above the typical band for protection insurers.

No clear source of missing buyers or motivated sellers is identified: Aflac is a widely followed stock, with no recent spin-off, no earnings miss versus consensus, and no impairment that would explain a discount. The current multiple (~15×x adjusted earnings) is above the [10-14x] band for the protection-insurer archetype, which suggests the market is paying for the quality of the regulatory capital and the pace of buybacks rather than discounting an unrecognized risk. Consistent with this reading, the projected 5-year total return in the base case is moderate (neither a bargain nor extreme overvaluation verdict): today's price already reflects much of the business's quality, and the margin of safety the method requires is not broadly met.

The annual return (CAGR at 5 years) in each scenario, with the total period return below — the margin of safety made visual: upside range wide, downside range narrow.

Even in the bear scenario, the return holds at ~0%/year (+1% total): the margin of safety protects the downside. The bull (+11%/year, +68% total) exceeds it comfortably — a favorable asymmetry, with a narrow downside range and a wide upside range.

• Concentration in Japan. 53% of adjusted earnings and 76% of assets depend on a single mature market with rate and yen pressure.
• 2025 cyber incident. Data exfiltration affecting ~22.65 million individuals in June 2025; litigation and regulatory costs ongoing, with no material impact disclosed so far.
• Interest-rate risk. Prolonged low rates in Japan depress investment income; rate increases generate unrealized losses that affect capital ratios.
• Agent misclassification. Most of the U.S. sales force consists of independent agents; a regulatory change reclassifying them as employees could be materially costly.
• Actuarial reserve adequacy. Reserves depend on assumptions about morbidity, mortality and persistency; deviations from actual experience can force adverse reserve revisions.

Each thinker's analytical framework applied to our data.

• Buffett / Graham Quality + margin of safety

  A wide moat and ROE 13% above the 10% bar, but the margin is limited (+3%) → excellent business at a fair price.

• Peter Lynch Growth at a reasonable price (GARP)

  A stalwart growing 3% at a PEG of 4.6 → expensive for its growth.

• Joel Greenblatt Cheap and high-return (Magic Formula)

  Not applicable — the Magic Formula excludes financials and regulated businesses (EBIT/EV does not capture the operating leverage).

• Howard Marks Perception vs reality + cycle

  The price discounts -8% vs our 3%: perception is more pessimistic than reality, with an identified source of the discount.

• Seth Klarman Capital protection (bear scenario)

  Bear-scenario floor -2%/yr, bull-scenario ceiling +9%/yr over 5y → capital protected, asymmetry in your favor.

• Pat Dorsey Moat strength (Five Rules)

  A wide moat, stable; sources: intangibles, efficient scale, cost advantage, switching costs → passes the Five Rules.

• Aswath Damodaran Expectations implied by the price

  Justifying the price requires discounting -8%, within what we project (3%) — the story squares with the numbers.