Manulife Financial Corporation MFC has been in investors' good books on the back of strong Asian business, growing wealth and asset management business and robust capital position.
The stock has seen its estimates for 2020 and 2021 move up 7.2% and 6.8%, respectively in the past 30 days, reflecting investor optimism.
The company delivered an earnings surprise in two of the last four reported quarters with the average beat being 6.79%. It expects core EPS growth rate in the range of 10%-12% in 2021 and believes that it is supported by both geographic and line of business diversification.
The Zacks Consensus Estimate for 2021 earnings per share is pegged at $2.21, indicating year-over-year increase of nearly 13.6%. The expected long-term earnings growth rate is 10%, which compares favorably with the industry growth rate of 9.5%.
Factors Driving Manulife Financial
Manulife has been developing its business in Asia, which majorly contributes to its earnings. In Asia, the company enhanced its commitment to digital enhancements and expanded its distribution capabilities, with approximately 97% of product shelf, which is now accessible to customers through non-face-to-face solutions. In addition, it continued to expand agency force, growing the number of agents by 35% in the second quarter year over year. The company witnessed increase in core earnings driven by in-force business growth across Asia and improved policyholder experience as a result of lower medical claims. Recently, Manulife renewed its distribution arrangement with Danamon Bank in Indonesia and extended it to 2036.
Manulife’s Wealth and Asset Management (WAM) business continued to witness core earnings growth. Its core EBITDA margin continued to improve on the back of lower expenses. The company launched a retirement planner tool in Global WAM U.S. business to deliver an innovative and engaging way for customers to visualize and plan for their retirement. The company also completed the formation of previously announced joint venture with Mahindra Finance, through which it aims to expand fund offerings, drive fund penetration and achieve long-term wealth creation in India.
This life insurer boasts a robust capital position with $31 billion of capital above the supervisory target of 100% with $53 billion in total available capital. Its LICAT ratio improved 1100 basis points (bps) to 155% at second-quarter 2020 end. Its leverage was 26%, marking an improvement of 40 bps year over year and targets leverage of 25% over the medium term. The company targets to free up to $5 billion in capital by 2022 and deliver core return on equity of more than 13% in medium term.
Furthermore, investors should be impressed by its disciplined capital management. The company has increased its dividend at a six-year (2014-2020) CAGR of 8.2%. Its current dividend yield of 5.7% is higher than the industry average of 3.4%, which makes the stock an attractive pick for yield-seeking investors. The company targets 30-40% dividend payout over the medium term.
It has a Zacks Rank #2 (Buy) and an impressive Value Score of A. Our research shows that stocks with a Value Score of A or B when combined with a Zacks Rank #1 (Strong Buy) or 2 offer the best opportunities in the value investing space.
However, shares of Manulife have lost 16.6% in the past year against the industry's decrease of 10.2%. Nonetheless, growth in Asian business, expansion of Wealth and Asset Management business and strong capital position should help the stock bounce back.
Other Stocks to Consider
Some other top-ranked stocks from the insurance space are Sun Life Financial Inc. SLF, Fidelity National Financial Inc. FNF and The Allstate Corporation ALL. While Fidelity National carries a Zacks Rank #1, Allstate and Sun Life Financial carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Fidelity National provides various insurance products in the United States and offers title insurance, escrow, other title related services and home warranty insurance. It surpassed estimates in each of the last four quarters, with the average being 32.13%.
Allstate provides property and casualty, and other insurance products in the United States and Canada. It surpassed estimates in each of the last four quarters, with the average surprise being 25.24%.
Sun Life Financial is a financial services company, which provides insurance, wealth, and asset management solutions to individuals and corporate clients in the United States, the United Kingdom, Canada and internationally. It surpassed estimates in each of the last four quarters, with the average surprise being 11.58%.
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