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Why Is Manulife (MFC) Up 4% Since Its Last Earnings Report?

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A month has gone by since the last earnings report for Manulife Financial Corp (MFC - Free Report) . Shares have added about 4% in that time frame.

Will the recent positive trend continue leading up to its next earnings release, or is MFC 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 Q1 Earnings Grow on Strong Segmental Results

Manulife Financial reported first-quarter 2018 core earnings of $1.03 billion (C$1,303 million), up 22% year over year. This upside stemmed from higher investment-related experience gains in core earnings, strong growth in Asia and Global Wealth and Asset Management, improved policyholder experience in Canada and a favorable impact of lower U.S. tax rates.

Premiums and deposits were $38 million (C$48.1 million), up about 11.6% year over year.

New business value in the reported quarter was $303.7 million (C$384 million), down 0.6% year over year.

Annualized premium equivalent sales decreased 10% year over year to $1.1 billion (C$1.4 billion) due to lower sales in Asia, Canada and the United States.

As of Mar 31, 2018, Manulife’s financial leverage ratio improved 60 basis points (bps) to 26.7% from Dec 31, 2017, driven by an increase in equity due to changes in foreign currency exchange rates as well as growth in retained earnings.

As of Mar 31, 2018, assets under management were $0.85 trillion (C$1.1 trillion), up 6.2% year over year.

Core return on equity, measuring the company’s profitability, expanded 230 bps year over year to 13.4%.

The Office of the Superintendent of Financial Institutions' new Life Insurance Capital Adequacy Test (LICAT) regulatory capital regime came into effect in Canada on Jan 1, 2018, replacing the Minimum Continuing Capital and Surplus framework. LICAT ratio was 129% at Mar 31, 2018.

Segmental Performance

Effective Jan1, 2018, Global Wealth and Asset Management has become a reportable segment for the company.

Global Wealth and Asset Management division’s core earnings came in at $179.5 million (C$227 million), up 20.7% year over year owing to higher fee income on greater average asset levels and lower U.S. tax rates. Net flows were $7.9 billion (C$10.0 billion), up 117.4% year over year.

Asia division core earnings came in at $338 million, up 25.2% year over year and driven by a combination of growth in new business volumes, favorable product mix, solid in-force business growth as well as scale benefits in Hong Kong and Asia Other, partially offset by lower core earnings in Japan due to contracted new business volumes.  Annualized premium equivalents sales however declined 26% year over year to $257 million in the first quarter due to lower sales volumes in Japan. However, strong growth in Hong Kong partially offset the downside.

Manulife’s Canada division core earnings of $265 million (C$335 million) were up 14% year over year due to improved claims experience in group insurance long-term disability business.

Annualized premium equivalent sales were $229.4 million (C$290 million), down 23% and attributable to large-case sale in group benefits and elevated individual insurance sales in first-quarter 2017 on tax-exempt changes.

The U.S. division reported core earnings of $341 million, up 2.4% year over year. This upside was fueled by a favorable impact of lower U.S. tax rates and a gain related to a historical annuity reinsurance item, partially offset by the impact of lower sales volumes, product mix changes and a less favorable policyholder experience. Annualized premium equivalents sales of $90 million declined 20%, attributable to lower international and variable universal life sales and exiting sales of COLI/ BOLI products

Dividend Update

The company’s board of directors approved 22 cents per share in dividends to shareholders of record as of May 15, 2018. The dividend will be paid on and after Jun 19.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. There has been one revision lower for the current quarter.

Manulife Financial Corp Price and Consensus

 

VGM Scores

At this time, MFC has a strong Growth Score of A, though it is lagging a lot on the momentum front with a C. However, 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 A. If you aren't focused on one strategy, this score is the one you should be interested in.

Based on our scores, the stock is equally suitable for value and growth investors than momentum investors.

Outlook

Estimates have been broadly trending downward for the stock and the magnitude of this revision indicates a downward shift. It's no surprise MFC has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.




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