Supplemental insurance company Aflac (AFL) reported Street-beating second-quarter earnings after Tuesday’s bell, but also lowered its forward guidance. As a result, AFL stock fell right to a key support level, where active investors and traders now have a very defined line of risk around which to focus. Below support, Aflac stock could set up on the short side, while as long as support holds the upside looks attractive for a bounce.
Specifically, Aflac earnings came to $1.87 per share, which were 10% higher year-over-year and beat estimates by 19 cents. Meanwhile, revenues stood at $5.84 billion for the quarter, also coming in above estimates for $5.74 billion, though down 3% YOY.
From a structural point of view, AFL stock still is somewhat supported by the company’s buyback program for 40 million shares initiated late last year. In the second quarter, Aflac bought back about 1.6 million shares.
In terms of the outlook, Aflac now expects operating earnings to grow in a range of 3%-4% for fiscal year 2014, which is both lower and more narrow than previous guidance of 2%-5%.
Following the results, a flurry of analysts either reiterated positive views or even upgraded Aflac stock despite slightly lower guidance for operating earnings.
Aflac Stock Charts
From a multiyear perspective, AFL stock remains constructively positioned. The rally off the early 2009 lows in late 2013 finally moved the stock back to its pre-crisis highs. Although through a technical lens this now has a double-top look to it, the stock’s down-draft so far this year has the look of a healthy consolidation period, which likely would resolve to the upside on a break past the $64 area.
On the daily chart, note that AFL stock found resistance at its 200-day simple moving average in April, and this resistance line ultimately held firm. Also, in Wednesday’s trading, this line helped the stock move lower.
Wednesday’s 2.79% selloff, albeit not huge in percentage terms, did come on a meaningful spike in volume that broke the stock below its May support line and right down to lateral support around the $60-$61 area, which has been in place all year.
Active investors can use Wednesday’s lows as their reference line. A break below there could offer up a chance to short the stock into the $57.50-$58 area, as a follow-through selling play.
If Wednesday’s lows hold, however, we want to look out for any bullish reversals that could get the stock moving higher again and toward the $64 area as an upside target.
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Download Serge’s trading plan in the Essence of Swing Trading e-book here. As of this writing, he did not hold a position in any of the aforementioned securities.