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Sun Life (SLF) Down 6.7% Since Last Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for Sun Life (SLF - Free Report) . Shares have lost about 6.7% in that time frame, underperforming the S&P 500.

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

Sun Life (SLF - Free Report) Q3 Earnings Rise on Solid Business, Dividend Up

Sun Life Financial  delivered third-quarter 2018 underlying net income of $558.5 million (C$729 million), up 13.5% year over year. This improvement was fueled by business growth, lower U.S. tax rate and a favourable investment experience. However, new business strain in SLF Asia and SLF Canada as well as a less favourable mortality experience were partial offsets.

Insurance sales dipped 3.7% year over year to $441 billion (C$577 billion), thanks to lower sales in SLF Canada and SLF U.S. Wealth sales declined 16.7% year over year to $22.8 million (C$29.8 billion) in the quarter under review induced by lower wealth sales in both SLF Canada and SLF Asia.

Premiums and deposits were $26.5 billion (C$34.6 billion), down 12.5% year over year on lower managed fund sales, decline in mutual fund sales and a decrease in lower premium and deposit equivalents in SLF Canada.

Net premiums rose 17.6% year over year to $3.4 billion (C$4.4 billion), backed by a favorable impact of the partial recapture of a reinsurance agreement in Group Benefits in SLF Canada and the favorable currency impact from the change in the Canadian dollar.

Segment Results

SLF Canada’s underlying net income increased 13.1% year over year to $192 million (C$251 million) on investment experience and business growth primarily in Group Retirement Services (GRS), partially offset by a decrease in new business gains. Insurance sales improved owing to higher individual insurance sale. Wealth sales decreased due to lower Group Retirement Services sales, which is again attributable to large case sales in 2017.

SLF U.S.’s underlying net income was $106 million, increasing 9.3% from the prior-year quarter on lower income tax rate in the United States and a favourable investment experience, partially offset by a less favourable mortality experience in Group Benefits.

SLF Asset Management’s underlying operating net income of $186 million grew nearly 17% year over year, driven by the lower income tax rate in the United States, expense management and higher average net assets.

SLF Asia reported an underlying income of $84.2 million (C$110 million), down 15.4% year over year, attributable to higher new business strain, an unfavourable variance in realized gains from AFS assets and increased expenses due to investment in expanding businesses, partially offset by business growth.

Financial Update

Global assets under management were $761.8 billion (C$984 billion), down 0.2% year over year.

Sun Life Assurance’s Minimum Continuing Capital and Surplus Requirements (LICAT) ratio was 145% as of Sep 30, 2018, having contracted 400 bps from the level as of Jun 30, 2018. While the LICAT ratio for Sun Life (including cash and other liquid assets) was 130%, also down 400 bps from the level on Jun 30, 2018.

Sun Life’s return on equity of 13.5% in the third quarter contracted 540 basis points year over year. Underlying ROE of 14% grew 130 basis points year over year.

Leverage ratio of 21.9% at third-quarter end improved 60 basis points year over year.

Dividend Update

The board of directors of Sun Life approved a 5% increase in its quarterly dividend, which rose to 50 cents per share. The amount is payable Dec 31 to shareholders of record on Nov 28. This hike reflects the insurer’s strong capital position and its growth prospects.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

Currently, Sun Life has a subpar Growth Score of D, however its Momentum Score is doing a lot better with an A. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top quintile 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 broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Sun Life has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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