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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 drivers.
Manulife Q3 Earnings Miss Estimates, Premiums Rise Y/Y
Manulife Financial delivered third-quarter 2021 core earnings of 60 cents per share, missing the Zacks Consensus Estimate by 7.7%. The bottom line improved 9.1% year over year.
Core earnings of $1.2 billion (C$1.5 billion) increased 10% year over year. This upside was driven by core investment gains, and higher net fee income from higher average assets under management and administration.
New business value (NBV) in the reported quarter was $428 million (C$539 million), up 22% year over year, attributable to solid sales volumes and favorable margins in the Asia, Canada and U.S. segments.
Annualized premium equivalent (APE) sales increased 5% year over year to $1.1 billion (C$1.4 billion), attributable to higher sales in Canada and U.S. segments.
The expense efficiency ratio deteriorated 10 basis points (bps) to 51.3%. As of Sep 30, 2021, Manulife Financial’s leverage ratio improved 120 bps year over year to 22.5
Wealth and asset management assets under management and administration were $647.7 billion (C$823.6 billion), up 15.1% year over year. Wealth and Asset Management business generated net inflows of $7.8 billion (C$9.8 billion), driven by double-digit growth in gross flows across all geographies amid increased investor demand as well as lower mutual fund redemption rates, higher sales of timberland mandates in the United States, growth in member contributions and new plan sales.
Core return on equity, measuring the company’s profitability, expanded 60 bps year over year to 12%.
Life Insurance Capital Adequacy Test (LICAT) ratio was 138% as of Sep 30, 2021, down from 155% as of Sep 30, 2020.
Global Wealth and Asset Management division’s core earnings came in at $279 million (C$351 million), down 1.4% year over year.
Asia division’s core earnings totaled $423 million (C$533 million), up 1.3% year over year. NBV increased 15%, primarily reflecting higher sales volumes in Hong Kong and Asia Other and favorable interest rates and product management actions in Hong Kong, partially offset by a decline in Japan due to lower Corporate Owned Life Insurance product sales.
APE sales decreased 2% as growth in Hong Kong and Asia Other was offset by lower COLI product sales in Japan.
Manulife Financial’s Canada division core earnings of $247 million (C$311 million) were down 2.2% year over year. NBV increased 6% year over year, primarily due to the impact of higher margins in annuities and continued growth in individual insurance, partially offset by lower volumes in group insurance.
APE sales increased 5%, primarily driven by higher individual insurance sales and increased customer demand for its lower risk segregated fund products, partially offset by variability in the large-case group insurance market.
The U.S. division reported core earnings of $389 million (C$490 million), up 4.3% year over year. NBV surged 162% year over year, primarily driven by higher sales volumes and favorable product mix due to higher international sales. APE sales increased 58% due to higher customer demand for international, domestic indexed universal life and variable universal life product offerings.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended upward during the past month.
At this time, Manulife has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been trending upward for the stock, and the magnitude of this revision has been net zero. 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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