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Why Is Manulife (MFC) Up 0.3% Since Last Earnings Report?

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A month has gone by since the last earnings report for Manulife Financial (MFC - Free Report) . Shares have added about 0.3% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Manulife due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Manulife Q2 Earnings Rise Y/Y, Asia Business Solid

Manulife Financial delivered second-quarter 2020 core earnings of $1.2 billion (C$1.6 billion), up 5% year over year. This upside was driven by encouraging policyholder experience, favorable impact of markets on seed money investments in segregated funds and mutual funds, and in-force business growth in Asia.

New business value (NBV) in the reported quarter was $277 million (C$384 million), down 22% year over year, attributable to COVID-19 related impacts.

Annualized premium equivalent (APE) sales decreased 15% year over year to $0.9 billion (C$1.2 billion), attributable to lower sales in Asia, Canada and U.S. segments.

Expense efficiency ratio improved 360 basis points (bps) to 48.9%.

As of Jun 30, 2020, Manulife Financial’s financial leverage ratio improved 40 bps year over year to 26%.

Wealth and asset management assets under management and administration were $509.8 billion (C$696.9 billion), up 6.7% year over year. Wealth and Asset Management business generated net inflows of $3.7 billion (C$5.1 billion), driven by positive contributions from institutional business.

Core return on equity, measuring the company’s profitability, contracted 50 bps year over year to 12.2%.

Life Insurance Capital Adequacy Test (LICAT) ratio was 155% as of Jun 30, 2019, up from 144% as of Jun 30, 2019.

Segmental Performance

Global Wealth and Asset Management division’s core earnings came in at $172 million (C$238 million), down 1.7% year over year.

Asia division’s core earnings totaled $353 million (C$489 million), up 3.8% year over year.  NBV decreased 21%, primarily due to a decrease in APE sales in Hong Kong, Japan and Asia Other, and a decline in interest rates in Hong Kong, partially offset by a more favorable business mix in Asia Other. APE sales decreased 17% mainly due to the adverse impact of COVID-19.

Manulife Financial’s Canada division core earnings of $247 million (C$342 million) were up 9.6% year over year. NBV declined 29% year over year largely due to lower sales volumes. APE sales decreased 18%, primarily due to variability in the large-case group insurance market.

The U.S. division reported core earnings of $434.2 million (C$602 million), up 36.5% year over year. NBV dropped 22%, primarily due to the impact of lower interest rates and lower sales due to COVID-19. APE sales decreased 3% mainly due to the adverse impact of COVID-19.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision. The consensus estimate has shifted 5.31% due to these changes.

VGM Scores

At this time, Manulife has a poor Growth Score of F, 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 20% 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 trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Manulife has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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