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Manulife (MFC) Up 10.5% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Manulife Financial (MFC - Free Report) . Shares have added about 10.5% in that time frame, outperforming 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 the most recent earnings report in order to get a better handle on the important catalysts.

Manulife Q4 Earnings Flat Y/Y, Asia Business Strong

Manulife Financial delivered fourth-quarter 2020 core earnings of $1.2 billion (C$1.5 billion), flat with the prior-year quarter.

Favorable impact of in-force business growth in Asia and the U.S., higher average AUMA in Global Wealth and Asset Management, favorable experience in P&C Reinsurance business and lower general expenses were offset by lower investment income in Corporate and Other.

New business value (NBV) in the reported quarter was $375 million (C$489 million), down 7% year over year due to lower business in Asia and the United States, partially offset by higher sales in Canada.

Annualized premium equivalent (APE) sales decreased 5% year over year to $1.1 billion (C$1.4 billion), attributable to lower sales in Canada and U.S. segments, partially offset by higher sales in Aisa.

Expense efficiency ratio improved 150 basis points (bps) to 52.7%.

As of Dec 31, 2020, Manulife Financial’s financial leverage ratio deteriorated 150 bps year over year to 26.6%.

Wealth and asset management assets under management and administration were $753.6 billion, up 10.6% year over year. Wealth and Asset Management business generated net outflow of $2.8 billion, down 42.9%, attributable to net outflows in the United States.

Core return on equity, measuring the company’s profitability, contracted 220 bps year over year to 10.9% in 2020.

Life Insurance Capital Adequacy Test (LICAT) ratio was 149% as of Dec 31, 2020, up from 140% as of Dec 31, 2019.

Book value per share excluding AOCI increased 9% to $21.74 as on Dec 31, 2020.

Manulife achieved medium-term target of delivering cumulative reduction in pre-tax annual general expenses of $1 billion and is on track to achieve target expense efficiency ratio of less than 50% by 2022.

Segmental Performance

Global Wealth and Asset Management division’s core earnings came in at $233 million (C$304 million), up 14.7% year over year.

Asia division’s core earnings totaled $438 million (C$571 million), up 15.6% year over year.  NBV declined 5% due to lower sales volumes in Hong Kong and less favorable product mix in Japan, partially offset by higher sales and more favorable product mix in Asia Other. APE sales increased 2% as growth in sales in Japan from COLI and higher Asia Other sales from Vietnam and Singapore were partially offset by lower sales in Hong Kon, due to the tightening of COVID-19 containment measures.

Manulife Financial’s Canada division core earnings of $242 million (C$316 million) were up 9.7% year over year. NBV increased 10% driven by higher margins across all business lines, partially offset by lower volumes in small and mid-size group insurance and individual insurance. APE sales decreased 10% primarily due to lower small and mid-size group insurance and individual insurance sales due to the adverse impact of COVID-19, partially offset by higher sales in lower risk segregated funds.

The U.S. division reported core earnings of $368 million (C$479 million), down 2% year over year. NBV dropped 26%, primarily due to lower international universal life sales volumes.. APE sales decreased 28%, as international universal life sales were unfavorably impacted by COVID-19 and domestic universal life sales decreased compared with a strong prior year quarter, which benefited from higher sales in advance of anticipated regulatory changes.

Loss at Corporate and Other were $150 million (C$196 million), reflecting a deterioration of 23.3% year over year.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

At this time, Manulife has a poor Growth Score of F, 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.

Outlook

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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