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Sun Life (SLF) Up 29% in 6 Months: More Room for Upside?

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Sun Life Financial Inc. (SLF - Free Report) shares have gained 29.3% in the past six months compared with the industry's increase of 12% and the Finance sector’s increase of 25.7%. The Zacks S&P 500 composite has risen 22% in the said time frame. With market capitalization of $28 billion, average volume of shares traded in the last three months was 0.5 million.

Strong Asia business, expanding wealth and asset management business, favorable business mix, and solid capital position are likely to drive Sun Life Financial. The company beat earnings estimates in the last five reported quarters.

Return on equity of 14.1% in the trailing twelve months was better than the industry average of 10.8%, reflecting the company’s efficiency in utilizing shareholders’ fund.  Sun Life estimates underlying return on equity between 12% and 14% in the medium term.

Will the Bull Run Continue?

The Zacks Consensus Estimate for 2021 earnings indicates year-over-year increase of 0.8%. The expected long-term earnings growth rate is pegged at 9%.

Being the third largest life insurer in Canada, this Zacks Rank #3 (Hold) life insurer is continually strengthening its presence in the Asian market. Emerging economies of Asia are expected to provide higher return and growth than the North American markets.

The company has been expanding its Wealth and Asset Management business. Sun Life Investment Management continues to boost its investment capabilities in private fixed income, mortgages and real estate by investing in pension plans and institutional investors.

Sun Life’s strategic buyouts have positioned it as the second-largest dental insurance network in the United States, consolidated its footprint in Vietnam, Indonesian and India and expanded its wealth business in Hong Kong. Sun Life is seeking to make investment in the private credit domain, which ensures greater yield, thus creating an opportunity to generate higher income. Thus the recent acquisition of 51% stake in Crescent Capital Group bodes well.

The company is shifting its growth focus toward products that park lower capital and offer more predictable earnings, such as mutual funds and group benefits.

The company has a robust balance sheet and targets leverage ratio of 25 over the long term.

With a payout of about 41%, its dividend yield is 3.5%, higher than the industry average of 3.2%. The company targets 40-50% dividend payout over the medium term.

Stocks to Consider    

Some better-ranked stocks from the same space include Primerica (PRI - Free Report) , Manulife Financial (MFC - Free Report) and Kemper (KMPR - Free Report) , each carrying Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Primerica delivered an earnings surprise of 16.81% in the last reported quarter.

Manulife delivered an earnings surprise of 5.77% in the last reported quarter.

Kemper delivered an earnings surprise of 49.45% in the last reported quarter.

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