Why Is Manulife (MFC) Down 3.6% Since Last Earnings Report?
A month has gone by since the last earnings report for Manulife Financial (MFC). Shares have lost about 3.6% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Manulife due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers. <p style="text-align: justify;"><u><strong>Manulife (MFC) Q2 Earnings Improve on Solid Segment Results</strong></u><br /><br />Manulife Financial Corporation delivered second-quarter 2018 core earnings of $1.11 billion (C$1,431 million), up 23.3% year over year. This upside stemmed from double-digit core earnings growth across all operating segments as well as solid net income.<br /><br />Premiums and deposits were $31.8 million (C$40.8 million), up about 3.3% year over year.<br /><br />New business value in the reported quarter was $318.4 million (C$411 million), up 23.8% year over year, attributable to its improvement in Asia and Canada.<br /><br />Annualized premium equivalent sales decreased 10% year over year to $0.9 billion (C$1.2 billion) due to lower sales in Canada and the United States.<br /><br />As of Jun 30, 2018, Manulife’s financial leverage ratio deteriorated 30 basis points (bps) to 29.4% from the level on Mar 31, 2018 as growth in retained earnings more than offset a net debt issuance.<br /><br />As of Jun 30, 2018, assets under management were $0.87 trillion (C$1.1 trillion), up 17.6% year over year.<br /><br />Core return on equity, measuring the company’s profitability, expanded 250 bps year over year to 14%.<br /><br />The Office of the Superintendent of Financial Institutions' new Life Insurance Capital Adequacy Test (LICAT) regulatory capital regime came into effect in Canada on Jan 1, 2018, replacing the Minimum Continuing Capital and Surplus framework. LICAT ratio was 132% as of Jun 30, 2018.<br /><br /><strong>Segmental Performance</strong><br /><br />Effective Jan 1, 2018, Global Wealth and Asset Management has ever since become a reportable segment for the company.<br /><br /><strong>Global Wealth and Asset Management </strong>division’s core earnings in local currency came in at $239 million, up 11.7% year over year owing to higher fee income on greater average asset levels and lower U.S. tax rates. However, higher expenses from non-recurrence of a favorable expense adjustment in prior-year quarter partially offset this upside. Net flows were $0.1 billion (in local currency) which plummeted 98.3% year over year.<br /><br /><strong>Asia </strong>division core earnings totaled $406 million, up 16% year over year and driven by a combination of growth in new business volumes, solid in-force business increase as well as scale benefits in Hong Kong and Asia Other, partially offset by lower core earnings in Japan due to less favorable claims experience and contracted new business volumes. Annualized premium equivalents sales improved 2% year over year to $711 million in the second quarter owing to solid growth in Hong Kong and Asia Other. However, lower sales volumes in Japan mostly offset this upside.<br /><br />Manulife’s <strong>Canada </strong>division core earnings of $313.5 million (C$403 million) were up 21.7% year over year on the back of a favorable policyholder experience in its group insurance business, higher new business margins in individual insurance as well as the release of provisions for uncertain tax positions related to the previous year.<br /><br />Annualized premium equivalent sales were $153.4 million (C$198 million), which plunged 54.9% due to non-recurrence of a large-case group insurance sale.<br /><br />The <strong>U.S. </strong>division reported core earnings of $456 million, up 27% year over year. This uptick was fueled by a favorable impact of lower U.S. tax rates, lower charges related to policyholder experience and lower amortization of deferred acquisition costs in legacy variable annuity business, partially offset by the impact of contracted sales volumes and product mix changes. Annualized premium equivalents sales of $99 million declined 20%, attributable to weak international sales in the quarter under review.<br /><br /><strong>Dividend Update</strong><br /><br />The company’s board of directors approved a dividend of 22 cents per share to shareholders of record on Aug 21, 2018. The payout will be made on and after Sep 19.</p>
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
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. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Manulife has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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