Why Is Manulife (MFC) Down 5.3% Since Last Earnings Report?
It has been about a month since the last earnings report for Manulife Financial (MFC). Shares have lost about 5.3% 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 catalysts.
Manulife Financial Q2 Earnings Top on Solid Asia Business
Manulife Financial delivered second-quarter 2023 core earnings of 62 cents per share, which beat the Zacks Consensus Estimate of 60 cents. The bottom line improved 1.6% year over year.
Core earnings of $1.2 billion (C$1.6 billion) increased 7.3% year over year. The improvement was driven by an increase in expected investment earnings related to higher investment yields and business growth, higher returns on surplus assets net of higher cost of debt financing and a smaller net charge in the provision for expected credit loss.
New business value (NBV) in the reported quarter was $435 million (C$585 million), up 10% year over year, attributable to higher sales volumes in Asia, Canada and the United States.
New business contractual service margin (CSM) of $441 million (C$592 million) rose 15% year over year.
Annualized premium equivalent (APE) sales increased 12% year over year to $1.2 billion (C$1.6 billion), attributable to higher sales in Asia.
Expense efficiency ratio increased 200 basis points (bps) to 45.1%.
Wealth and asset management assets under management and administration were $618.1 billion (C$819.6 billion), up 9.7% year over year. The Wealth and Asset Management business generated net outflows of $1.6 billion (C$2.2 billion), up 29.4%. This was due to lower net outflows at Retail.
Core return on equity, measuring the company’s profitability, expanded 40 bps year over year to 15.5%. Financial leverage ratio improved 20 basis points to 25.8% at quarter end.
Life Insurance Capital Adequacy Test ratio was 136% as of Jun 30, 2023, up from 131% as of Dec 31, 2022.
Adjusted book value per common share was $29.42, up 4.8% year over year.
Segmental Performance
Global Wealth and Asset Management division’s core earnings came in at $238 million (C$320 million), down 2.1% year over year.
Asia division’s core earnings totaled $352 million (C$473 million), up 5.1% year over year. NBV increased 3% year over year, driven by higher sales volumes, partially offset by the business mix.
APE sales increased 26%, driven by growth in Hong Kong and Asia other. New business CSM increased 26% year over year, driven by higher sales volumes and model refinements, partially offset by business mix
Manulife Financial’s Canada division core earnings of $277 million (C$372 million) were up 2.2% year over year. NBV increased 29%, driven by higher margins in all business lines largely due to product mix, partially offset by lower sales volumes in Annuities and Group Insurance.
APE sales decreased 11% due to usual variability in the group insurance market, with lower large-case sales, partially offset by higher mid-size business sales, as well as lower sales of segregated fund products. New business CSM increased 21% driven by product mix in Individual Insurance.
The U.S. division reported core earnings of $341 million (C$458 million), up 7% year over year. NBV increased 43% due to pricing actions, higher interest rates and product mix, partially offset by lower sales volumes.
APE sales decreased 15% due to the adverse impact of higher short-term interest rates on accumulation insurance products, particularly for its higher net worth customers. New business CSM decreased 17% due to lower sales volumes.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates revision.
VGM Scores
At this time, Manulife has a subpar Growth Score of D, a grade with the same score on the momentum front. However, 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 upward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Manulife has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Manulife belongs to the Zacks Insurance - Life Insurance industry. Another stock from the same industry, American Equity Investment (AEL), has gained 1% over the past month. More than a month has passed since the company reported results for the quarter ended June 2023.
American Equity reported revenues of $542.69 million in the last reported quarter, representing a year-over-year change of -8.4%. EPS of $1.62 for the same period compares with $0.98 a year ago.
American Equity is expected to post earnings of $1.68 per share for the current quarter, representing a year-over-year change of +69.7%. Over the last 30 days, the Zacks Consensus Estimate has changed +0.2%.
American Equity has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of A.
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