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Sun Life (SLF) Up 2.7% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Sun Life (SLF - Free Report) . Shares have added about 2.7% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Sun Life due for a pullback? 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.

Sun Life Q2 Earnings Flat Y/Y, Asset Management Grows

Sun Life Financial reported second-quarter 2020 underlying net income of $533 million (C$739 million), flat year over year. Positive impacts of business growth, investing activity, morbidity experience and higher net investment returns on surplus were offset by unfavorable tax impacts, credit experience and higher expense.

Insurance sales decreased 5.8% year over year to $446 billion (C$619 million) on the back of lower sales in SLF Canada. Wealth sales were up 53.2% year over year to $40.8 million (C$56.6 billion) in the quarter on higher sales in Asia and Asset Management.

Value of new business dropped 12.3% year over year to $149 million (C$206 million).

Segmental Results

SLF Canada’s underlying net income increased 16% year over year to $203 million (C$281 million) driven by higher investing activity, partially offset by credit experience. Insurance sales declined 22% on lower large case sales in Group Benefit, and lower sales in Individual Insurance as a result of the impact of COVID-19. Wealth sales increased 7%, owing to the timing of large case sales in Group Retirement Services (GRS) and lower sales in Individual Wealth

SLF U.S.’ underlying net income was $89 million (C$123 million), up 12% from the prior-year quarter. This upside was driven by business growth, favorable morbidity experience and a gain arising from the conclusion of a legal matter, partially offset by unfavorable mortality experience and credit experience. Sales remained flat year over year.

SLF Asset Management’s underlying net income of $187 million (C$259 million) increased 6% year over year, driven by the increase in SLC Management's performance fees and net income from the BGO acquisition that closed in July 2019, partially offset by higher sales expenses in MFS.

SLF Asia reported an underlying income of $104 million (C$144 million), down 2% year over year, attributable to unfavorable credit experience and lower available-for-sale asset ("AFS") gains, largely offset by a gain from a mortgage investment prepayment and favorable morbidity experience. Insurance sales remained flat year over year as increases in international hubs, China and Vietnam were offset by a decrease in sales in other insurance markets as a result of the impact of COVID-19. Wealth sales increased 36%, driven by fixed income sales in India and money market sales in the Philippines.

Financial Update

Global assets under management were $821 billion (C$1122 billion), up 9.5% year over year.

Sun Life Assurance’s Minimum Continuing Capital and Surplus Requirements (LICAT) ratio was 126% as of Jun 30, 2020 versus 130% as on Jun 30, 2019. The LICAT ratio for Sun Life was 146% versus 143% as on Jun 30, 2019.

Sun Life’s reported return on equity of 9.4% in the second quarter contracted 160 basis points (bps) year over year. Underlying ROE of 13.4% contracted 30 bps year over year.

Leverage ratio of 23.2% at quarter end deteriorated 200 basis points year over year.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month.

VGM Scores

At this time, Sun Life has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the second quintile 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 looks promising. It comes with little surprise Sun Life has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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