Manulife (MFC) Up 2.6% Since Last Earnings Report: Can It Continue?
A month has gone by since the last earnings report for Manulife Financial (MFC). Shares have added about 2.6% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Manulife due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Manulife Q3 Earnings Lag Estimates on Soft Asia Business
Manulife Financial Corporation delivered third-quarter 2022 core earnings of 51 cents per share, which missed the Zacks Consensus Estimate by 3.8%. The bottom line declined 15% year over year.
Core earnings of $1 billion (C$1.3 billion) decreased 16.7% year over year. The decrease was due to a $256 million charge in the P&C Reinsurance business for estimated losses related to Hurricane Ian, lower net gains on sales of AFS equities and the unfavorable impact of markets on seed money investments in new and segregated mutual funds in Corporate and Other. Lower new business gains in Asia and the U.S., lower U.S. Annuities in-force earnings, and a higher charge from net unfavorable U.S. policyholder experience also added to the downside.
New business value (NBV) in the reported quarter was $394 million (C$514 million), down 7.9% year over year, attributable to solid sales volumes and favorable margins in the Canada and U.S. segments. Annualized premium equivalent (APE) sales decreased 9% year over year to $1 billion (C$1.3 billion), attributable to lower sales in Asia, Canada and U.S. segments.
The expense efficiency ratio deteriorated 260 basis points (bps) to 53.9%. As of Sep 30, 2023, Manulife Financial’s leverage ratio deteriorated 330 bps year over year to 28.8. Wealth and asset management assets under management and administration were $546.9 billion (C$748.8 billion), down 15.6% year over year.
The Wealth and Asset Management business generated net inflows of $2.3 billion (C$3 billion), down 70% year over year. The decrease was due to lower gross flows and higher mutual fund redemption rates caused by decreased investor demand amid equity market declines and higher interest rates, and higher redemptions, partially offset by higher sales of equity and fixed-income mandates.
Core return on equity, measuring the company’s profitability, contracted 170 bps year over year to 10.3%. Life Insurance Capital Adequacy Test ratio was 136% as of Sep 30, 2022, down from 138% as of Sep 30, 2021.
Segmental Performance
Global Wealth and Asset Management division’s core earnings came in at $264.4 million (C$ 345 million), down 5.2% year over year.
Asia division’s core earnings totaled $393 million (C$513 million), down 7.1% year over year. In Asia, NBV decreased 17% year over year, reflecting lower sales in Hong Kong and changes in product mix in Asia and Other. It was partially offset by higher individual protection and other wealth sales in Japan. APE sales decreased 7% due to lower sales in Hong Kong. It was partially offset by higher sales in Japan, Asia and Other.
Manulife Financial’s Canada division’s core earnings of $268 million (C$350 million) were up 8.5% year over year. In Canada, NBV increased 25% year over year, driven by higher margins in its insurance businesses. It was partially offset by lower volumes in Annuities. APE sales decreased 6% due to lower segregated fund sales and the non-recurrence of a large affinity markets sale in the third quarter of 2021. It was partially offset by the normal variability of large-case group insurance sales.
The U.S. division reported core earnings of $500 million (C$384 million), up 28.5% year over year. NBV increased 27% year over year, driven by improved margins due to pricing actions, higher interest rates and changes in product mix.
APE sales decreased 1%, primarily due to lower sales of domestic life insurance products. It was partially offset by an increase in international sales, which are reported as part of U.S. segment results.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month.
VGM Scores
At this time, Manulife has a subpar Growth Score of D, however its Momentum Score is doing a lot better with an A. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Manulife has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.
Performance of an Industry Player
Manulife is part of the Zacks Insurance - Life Insurance industry. Over the past month, Sun Life (SLF), a stock from the same industry, has gained 0.8%. The company reported its results for the quarter ended September 2022 more than a month ago.
Sun Life reported revenues of $6.62 billion in the last reported quarter, representing a year-over-year change of -2.1%. EPS of $1.24 for the same period compares with $1.22 a year ago.
For the current quarter, Sun Life is expected to post earnings of $1.12 per share, indicating a change of -7.4% from the year-ago quarter. The Zacks Consensus Estimate remained unchanged over the last 30 days.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #4 (Sell) for Sun Life. Also, the stock has a VGM Score of B.
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