We are reiterating our Neutral recommendation on Manulife Financial Corp. ( MFC), following its solid first quarter results which included a 18.5% positive earnings surprise. This Zacks Rank # 3 (Hold) life insurer performed reasonably well led by lower new business strain, smaller amortization of deferred acquisition costs and decreased expenses.
Manulife is aggressively developing its business from Asia. The company has expanded its distribution network across the region, securing and deepening strategically important distribution agreements with key partners in Japan and Indonesia. We expect the company to gain further advantage in the Asian markets which remains a key to its long term growth.
Manulife’s business exposes it to interest rate and equity market volatility. To offset these involuntary forces affecting its business, the company has effectively built its hedging program. Manulife has achieved its 2014 hedging targets and is now two years ahead of schedule. We believe these steps will help the company to emerge as a stronger company, cushioning earnings from uncountable market variables.
Manulife is aligning its product offering to concentrate on higher margin, low risk products as against higher risk-capital intensive products. While this will result in subdued growth relative to its historical pace, we believe that it will deliver more sustainable growth targets and improve product margins as well as earnings consistency over time.
Moreover, Manulife is maintaining a strong capital position. The company retains a high quality investment portfolio. Its invested assets are highly diversified by sector and geography and have limited exposure to the high-risk areas.
Nevertheless, low bond yields and a volatile equity markets continue to pose headwinds for the company, dwarfing the positives.
Protective Life Corp. ( PL), Stancorp Financial Group Inc. ( SFG), both with Zacks Rank #1 (Strong Buy) and China Life Insurance Co.Ltd. ( LFC), carrying Zacks Rank #2 (Buy) and are worth considering.
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