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Sun Life Rides on Strong Premiums & Robust Capital Position

Zacks Equity Research

Sun Life Financial Inc. SLF is well-poised to gain from strategic initiatives and improved liquidity position.

It has a trailing four-quarter positive earnings surprise of 8.57%, on average. The expected long-term earnings growth rate is 9%, better than the industry average of 8.4%.

Sun Life’s ROE of 13.8% compares favorably with the industry’s figure of 11.9%. This implies efficient utilization of shareholders’ funds. The stock has seen the Zacks Consensus Estimate being revised upward by 1.2% over the past 30 days for current-year earnings.

Factors Driving Performance

Sun Life continues to benefit courtesy of improved premiums, which has contributed to the top line. Net premiums have witnessed a CAGR of 17.1% in the past four years (2015-2019). We believe the company’s Global Asset Management business, which has been witnessing an increasing asset base for the past several quarters, is likely to provide further boost to the bottom line.

In a bid to boost international business, Sun Life continues to focus on the emerging economies of Asia. Despite already having a strong presence in Asia, the company continues to make strategic investments to strengthen foothold in the region. Moreover, the SLF Asia segment benefited from favorable credit experience, new business gains primarily in International and Hong Kong, and improved mortality experience in first-quarter 2020.

Furthermore, the life insurer has been consistently undertaking several initiatives to enhance portfolio solutions. In February of this year, Sun Life introduced five private investment tools, which are intended to leverage the company's strength and cater to requirements of investors in an unpredictable environment dominated by low interest rates. The company has been making strategic buyouts as well to accelerate growth prospects.

Additionally, the company’s improved liquidity position has led to a strong balance sheet. Sun Life has sufficient cash reserves to meet debt obligations. By virtue of its robust capital position, it engages in effective capital deployment. Its dividend yield of 4.7% compares favorably with the industry’s figure of 2.7%, thus making the stock an attractive pick for yield seeking investors.

However, escalating expenses, which are likely to put pressure on margin expansion, remain a concern.

Price Performance

Shares of this Zacks Rank #3 (Hold) life insurer have lost 10.8% in a year, compared with the industry’s decline of 21.3%.

 

Stocks to Consider

Some better-ranked stocks in the same space include American Equity Investment Life Holding Company AEL, Brighthouse Financial, Inc. BHF and Primerica, Inc. PRI each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

American Equity Investment is a full service underwriter of a broad line of annuity and insurance products, with a primary emphasis on the sale of fixed rate and index annuities. It beat estimates in each of the trailing four quarters, with the average positive surprise being 63.04%.

Brighthouse provides annuity and life insurance products in the United States through multiple independent distribution channels and marketing arrangements with a diverse network of distribution partners. It surpassed estimates in each of the preceding four quarters, with the average positive surprise being 14.38%.

Primerica provides financial products and services to serve middle income families by helping them make informed financial decisions. It outpaced estimates in each of the preceding four quarters, with the average positive surprise being 4.29%.

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