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Manulife (MFC) Down 6.3% 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 6.3% 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 Q1 Earnings Improve Y/Y, Asia Business Strong

Manulife Financial delivered first-quarter 2019 core earnings of $1.1 billion (C$1.5 billion), up 15% year over year. This upside can be attributed to new business growth in Asia, higher investment income and improved expense efficiency.

New business value in the reported quarter was $390 million (C$519 million), up 31% year over year on the back of double-digit growth across all insurance segments.

Annualized premium equivalent (APE) sales increased 23% year over year to $1.3 billion (C$1.7 billion) driven by higher sales.

Expense efficiency ratio improved 210 basis points (bps) to 49.9%.

As of Mar 31, 2019, Manulife Financial’s financial leverage ratio improved 270 bps year over year to 27%.

Wealth and asset management assets under management and administration net outflows were $1 billion (C$1.3 billion).

Core return on equity, measuring the company’s profitability, expanded 80 bps year over year to 14.2%.

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 144% as of Mar 31, 2019, up from 143% as of Dec 31, 2018.

Segmental Performance

Global Wealth and Asset Management division’s core earnings came in at $175 million (C$233 million), up 2.6% year over year.

Asia division’s core earnings totaled $345.2 million (C$459 million), up 12.3% year over year.  NBV increased 23% driven by higher sales. Annualized premium equivalents sales improved 32% year over year on solid growth in Japan, Hong Kong and Asia Other.

Manulife Financial’s Canada division core earnings of $212.8 million (C$283 million) were flat year over year. NBV increased 27% driven by new Manulife Par product. Annualized premium equivalent sales dropped 10% year over year due to lower large-case group insurance sales.

The U.S. division reported core earnings of $357 million (C$475 million), up 4.6% year over year. NBV more than quadrupled on strategic actions taken to improve margins and a more favorable product mix. Annualized premium equivalents sales increased 20% year over year on higher universal life and international sales.

Dividend Update

The board of directors declared a dividend of 25 cents per share payable on Jun 19 to shareholders of record at the close of business on May 14.

How Have Estimates Been Moving Since Then?

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

VGM Scores

At this time, Manulife has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. However, 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

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. 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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