Manulife (MFC) Down 2.6% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for Manulife Financial (MFC). Shares have lost about 2.6% 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's Q3 Earnings Flat Y/Y, Asia Business Upbeat

Manulife Financial’s third-quarter 2019 core earnings of $1.1 billion (C$1.5 billion) remained unchanged year over year. This result can be attributed to double-digit core earnings growth in Asia, partially offset by an impact on earnings due to actions undertaken over the past year to boost the capital efficiency of legacy business along with lower new business volumes in Japan.

New business value (NBV) in the reported quarter was $398.4 million (C$526 million), up 15.2% year over year on the back of growth in Asia, U.S. and Canada insurance segments. However, the same was offset to some extent due to lower sales in Japan.

Annualized premium equivalent (APE) sales of $1.1 billion (C$1.4 billion) were almost flat year over year, primarily on account of higher sales in Hong Kong and Canada.

Expense efficiency ratio expanded 190 basis points (bps) to 51.4%.
As of Sep 30, 2019, Manulife Financial’s financial leverage ratio contracted 310 basis points (bps) year over year to 26.1%.

Wealth and asset management and administration were $497.8 billion (C$ 659.2 billion) in the third quarter of 2019.

Core return on equity, measuring the company’s profitability, contracted 180 bps year over year to 13%.

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 146% as of Sep 30, 2019.

Segmental Performance

Global Wealth and Asset Management division’s core earnings in local currency were $281 million, down 2.4% year over year. Net outflows were $4.4 billion (in local currency) in the third quarter compared with cash flow of $0.4 billion in the prior-year period.

Asia division’s core earnings totaled $393.8 million (C$520 million).  NBV increased 10%, driven by a favorable business mix but partially offset by weak sales in Japan. Annualized premium equivalents sales decreased 4% year over year as growth in Hong Kong and Asia was more than offset by lower sales in Japan.

Canada division’s core earnings of $240.8 million (C$318 million) were down 10.3% year over year. NBV inched up 21% year over year owing to higher insurance sales and a favorable business mix in group insurance. APE sales rose 12%, riding on the introduction of Manulife Par in the second half of 2018.

The U.S. division reported core earnings of $356.7 million (C$471 million). NBV soared 62%, primarily as a result of recent actions taken to improve margins and a more favorable product mix. APE sales dipped 3% on higher universal life and international sales.

How Have Estimates Been Moving Since Then?

Estimates revision followed an upward path over the past two months.

VGM Scores

At this time, Manulife has a subpar Growth Score of D, however its Momentum Score is doing a bit better 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

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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