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Manulife (MFC) to Gain From Solid Asia and WAM Businesses

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Zacks Equity Research
·4 min read
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Manulife Financial Corporation MFC has been in investors' good books on the back of lower general expenses, higher new business and effective capital deployment.

The stock has seen its estimates for 2021 move up nearly 0.4%, in the past 30 days that reflects investors’ optimism.

This Zacks Rank #2 (Buy) life insurer has maintained focus on two of its highest potential operating division, Asia and Global Wealth and Asset Management (WAM).

Higher average assets under management and administration (AUMA) and lower general expenses from ongoing efficiency initiatives, favorable impacts from changes in product mix, higher fee spread, and higher tax benefits should continue to drive Manulife Financial’s U.S. Retirement business.

In Asia, the life insurer extended its bancassurance agreement with Bank Danamon Indonesia to 2036. Also, it signed an agreement to establish an exclusive, 16-year bancassurance partnership with VietinBank, one of Vietnam’s largest banks, and agreed to purchase Aviva plc’s Vietnam insurance operations, both of which will strengthen its leadership position in this fast-growing market.

In-force business growth across Asia, favorable new business primarily from product mix in Hong Kong and Vietnam and disciplined expense management, higher new business and volumes in Hong Kong should continue to drive Manulife Financial’s Asia business.

Manulife Financial’s capital position remains strong with a LICAT ratio of 149%, representing $29 billion of capital above the supervisory target and is driven by lower interest rates, net capital issuances and a capital benefit from the reinsurance of a block of U.S. bank-owned life insurance business. In addition, it continued to maintain a cash and cash equivalent position.

Over the last the years, the life insurer has reduced the leverage ratio as well. Its debt to capital of 10% betters the industry average of 11%.

Furthermore, its continued momentum and strong financial performance have resulted in a history of progressive dividend increases over the last five years. Its current dividend yield of 3.9% is higher than the industry average of 3%, which makes the stock an attractive pick for yield-seeking investors.
Moreover, it has a decent earnings surprise history too. with trailing four-quarter earnings surprise of 9.64%.

The Zacks Consensus Estimate for 2021 and 2022 earnings per share is pegged at $2.40 and $2.63, indicating year-over-year increases of 17% and 9.5%, respectively. The expected long-term earnings growth rate is pegged at 10%.

Shares of Manulife have gained 81.9% in the past year, outperforming the industry's increase of 41.8%. Growth in Asian business, expansion of Wealth and Asset Management business and strong capital position should help shares retain the momentum.

The company has 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.

Other Stocks to Consider

Some other top-ranked stocks from the insurance space are Primerica, Inc. PRI, Cincinnati Financial Corporation CINF and First American Financial Corporation FAF, each carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Primerica’s bottom line surpassed estimates in three of the last four quarters, the average beat being 8.36%.

Cincinnati Financial surpassed earnings estimates in two of the last four quarters and missed in two, with the average surprise being 4.10%.

First American Financial’s bottom line surpassed estimates in three of the last four quarters and missed in one, the average beat being 15.86%.

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