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Why Is Sun Life (SLF) Down 4.3% Since Last Earnings Report?

Zacks Equity Research

It has been about a month since the last earnings report for Sun Life (SLF). Shares have lost about 4.3% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is 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 the most recent earnings report in order to get a better handle on the important catalysts.

Sun Life Q3 Earnings Increase Y/Y on Business Growth

Sun Life Financial reported third-quarter 2019 underlying net income of $612.9 million (C$809 million), up 9.7% year over year. The upside reflects business growth, favorable credit experience, a gain from a mortgage investment prepayment in the United States and higher available-for-sale ("AFS") gains, offset by unfavorable morbidity experience in Canada and the United States and lower investing activity gains.

Insurance sales increased to $518.9 million (C$685 million) on the back of higher sales in both Asia and Asset Management. Wealth sales increased to $31.2 billion (C$41.2 billion) in the quarter on higher sales in Canada.

Premiums and deposits were $35.2 billion (C$46.5 billion) due to higher net premium revenues, mutual fund sales and managed fund sales.

Net premiums of the company increased 5.9% year over year to $3.6 billion (C$4.8 billion).

Segmental Results

SLF Canada’s underlying net income increased 5.7% year over year to $203 million (C$268 million), reflecting business growth, higher AFS gains and favorable expense experience, offset by unfavorable morbidity experience and lower new business gains. Insurance sales increased to $154.5 million (C$204 million). Wealth sales increased to $3.1 billion (C$4.1 billion), driven by Group Retirement Services ("GRS").

SLF U.S.’ underlying net income was $135 million, down 3% from the prior-year quarter. Insurance sales increased 7% driven primarily by increases in medical stop-loss sales.

SLF Asset Management’s underlying net income of $251 million was flat year over year, reflecting consistent average net assets in MFS Investment Management.

SLF Asia reported underlying income of $104.5 million (C$138 million), up 24.1% year over year, driven by higher AFS gains, favorable credit experience and business growth. Insurance sales were $225 million (C$297 million) in the quarter under review driven by strong growth in most local insurance markets and in International. Wealth sales totaled $1.9 billion (C$2.6 billion), primarily driven by higher money market sales in the Philippines and growth in the pension business in Hong Kong. It was partially offset by lower mutual fund sales in India due to weak market sentiment and volatility.

Financial Update

Global assets under management were $802.8 million (C$1062.9 billion), up 5.4% year over year.

Sun Life Assurance’s Minimum Continuing Capital and Surplus Requirements (LICAT) ratio was 133% as of Sep 30, 2019. The LICAT ratio for Sun Life was 146%.

Sun Life reported return on equity of 13% in the third quarter, up 220 basis points (bps) year over year. Underlying ROE of 15.5% expanded 150 bps year over year.

Third-quarter leverage ratio of 22.8% improved 90 basis points year over year.

Capital Deployment

Sun Life increased dividend by 5% to 55 cents in the third quarter.
 

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended upward during the past month.

VGM Scores

At this time, Sun Life has a subpar Growth Score of D, a grade with the same score on the momentum front. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. 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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