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Why Is Sun Life (SLF) Up 1.8% Since Last Earnings Report?

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It has been about a month since the last earnings report for Sun Life (SLF - Free Report) . Shares have added about 1.8% in that time frame, underperforming 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  Q3 Earnings Rise Y/Y, Asset Management Grows

Sun Life Financial reported third-quarter 2020 underlying net income of $632 million (C$842 million), up 4.1% year over year. Positive impacts of business growth, favorable results in Group Benefits (GB) in Canada, favorable morbidity experience in the United States, higher new business gains and increase in investing activity were partially offset by unfavorable tax impacts, credit experience and mortality experience as well as lower net investment returns on surplus, and lower available-for-sale gains

Insurance sales decreased 0.6% year over year to $511 billion (C$681 million) on the back of lower sales in SLF Canada. Wealth sales were up 27.9% year over year to $39.5 million (C$52.7 billion) in the quarter on higher sales in Canada, Asia and Asset Management.

Value of new business increased 3.6% year over year to $196 million (C$261 million).

Segmental Results

SLF Canada’s underlying net income increased 9% year over year to $220 million (C$293 million) driven by favorable results in GB and business growth, partially offset by lower net investment returns on surplus and lower AFS gains. Insurance sales declined 28% on lower sales in Group Benefit. Wealth sales increased 65%, driven by higher large case sales in Group Retirement Services (GRS) and higher guaranteed product sales in individual wealth.

SLF U.S.’ underlying net income was $102 million (C$136 million), up 1% from the prior-year quarter  as favorable morbidity experience in medical stop-loss, business growth and higher investing activity were partially offset by unfavorable mortality in Group Benefits, unfavorable expense experience and less favorable credit experience. Sales increased 25% year over year driven by higher sales across all businesses.

SLF Asset Management’s underlying net income of $220 million (C$294 million) increased 17% year over year, driven by higher average net assets (ANA), partially offset by changes in net investment returns and higher sales expenses in MFS. Sales improved 25% year over year.

SLF Asia reported an underlying income of $123 million (C$164 million), up 19% year over year, driven by new business gains, primarily in International Hubs, favorable expense experience and business growth, partially offset by less favorable credit experience. Insurance sales increased 2% year over year as increases, primarily in International Hubs, were partially offset by the Philippines as a result of the impact of COVID-19. Wealth sales increased 8%, driven by fixed income sales in India, partially offset by lower wealth sales in the Philippines.

Financial Update

Global assets under management were $886.5 billion (C$1,186.3 billion), up 11.6% year over year.

Sun Life Assurance’s Minimum Continuing Capital and Surplus Requirements (LICAT) ratio was 127% as of Sep 30, 2020 versus 130% as on Sep 30, 2019. The LICAT ratio for Sun Life was 144% versus 143% as on Sep 30, 2019.

Sun Life’s reported return on equity of 13.5% in the third quarter expanded 50 basis points (bps) year over year. Underlying ROE of 15.1% contracted 40 bps year over year.

Leverage ratio of 21.5% at quarter end deteriorated 30 basis points year over year.

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 5.68% due to these changes.

VGM Scores

At this time, Sun Life has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 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 Sun Life has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.


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