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Manulife (MFC) Down 8.7% Since Last Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for Manulife Financial (MFC - Free Report) . Shares have lost about 8.7% in that time frame, underperforming the S&P 500.

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

Manulife Financial Q3 Earnings Rise on Business Growth

Manulife Financial Corporation delivered third-quarter 2018 core earnings of $1.2 billion (C$1,539 million), up 41.8% year over year. This upside is attributable to double-digit core earnings growth across Asia, United States plus Global Wealth and Asset Management segments as well as solid net income.

Premiums and deposits were $6.2 billion (C$8.1 billion), down nearly 27.3% year over year.

New business value in the reported quarter was $345.8 million (C$452 million), up 38% year over year on the back of robust growth across all insurance segments.

Annualized premium equivalent (APE) sales increased 10.7% year over year to $1.1 billion (C$1.4 billion) owing to higher sales in Asia and the United States.

As of Sep 30, 2018, Manulife Financial’s financial leverage ratio improved 20 basis points (bps) to 29.2% from the level on Jun 30, 2018 as growth in retained earnings more than offset the impact of a stronger Canadian dollar.

As of Sep 30, 2018, assets under management were $0.85 trillion (C$1.1 trillion), up 7.8% year over year.

Core return on equity, measuring the company’s profitability, expanded 420 bps year over year to 14.8%.

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 134% as of Sep 30, 2018.

Segmental Performance

Effective Jan 1, 2018, Global Wealth and Asset Management has ever since become a reportable segment for the company.

Global Wealth and Asset Management division’s core earnings in local currency came in at $289 million, up 33.8% year over year owing to higher earnings on greater average asset levels and lower U.S. tax rates. Net flows were $10.5 billion (in local currency), rising 7% year over year.

Asia division’s core earnings totaled $457 million, up 22.2% year over year and driven by all key operating business lines. This in turn, reflects a positive impact of the new business from higher sales volume, solid in-force business growth as well as an improved product mix.  Annualized premium equivalents sales improved 13% year over year to $818 million in the third quarter, riding on solid growth in Japan, Hong Kong and Asia Other.

Manulife Financial’s Canada division core earnings of $268.5 million (C$351 million) were down 12.9% year over year due to the release of provisions for uncertain tax positions related to the previous year that did not recur.

Annualized premium equivalent sales were $160.7 million (C$210 million), which improved 20%, fueled by variability in the large-case group insurance market.

The U.S. division reported core earnings of $477 million, up 37.9% year over year. This uptick was fueled by lower U.S. tax rates, a favorable policyholder experience and the impact of higher sales volume as well as product mix changes. However, other experience related items partially offset this upside. Annualized premium equivalents sales of $122 million increased 14%, attributable to better features on the indexed life product offerings and a consistent ramp-up of product sales with the John Hancock Vitality PLUS feature that benefited multiple products in the reported quarter.


Dividend Update

In the quarter under review, the company paid a dividend of 22 cents per share, up 7% from the year-ago quarter.

On Nov 1, 2018, the company’s board of directors approved a dividend hike of 14% amounting to 3 cents per share. This resulted in a quarterly dividend of 25 cents, which will be paid on or after Dec 19, 2018 to shareholders of record at the close of business on Nov 20, 2018. 

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates flatlined during the past month.

VGM Scores

At this time, Manulife has an average Growth Score of C, however its Momentum Score is doing a bit 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 quintile 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.

Outlook

Manulife has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.




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