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Why Is Sun Life (SLF) Down 6.1% Since Last Earnings Report?

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  • SLF

A month has gone by since the last earnings report for Sun Life (SLF). Shares have lost about 6.1% 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 drivers.

Sun Life Financial Q3 Earnings Increase Year Over Year

Sun Life Financial reported third-quarter 2021 underlying net income of $765 million (C$902 million), up 21% year over year. This improvement was driven by business growth, favorable credit experience, and higher tax-exempt investment income. These were partially offset by morbidity and expense experience and the unfavorable impacts of foreign exchange translation.

Insurance sales increased 4.2% year over year to $532.6 million (C$628 million) on the back of higher sales in SLF Canada. Wealth sales were up 8.9% year over year to $43 billion (C$50.7 billion) in the quarter on higher sales in Asia.

Value of new business increased 25.4% year over year to $245.9 million (C$290 million).

Segmental Results

SLF Canada’s underlying net income increased 11.8% year over year to $246 million (C$290 million) driven by business growth, higher tax-exempt investment income and favorable credit experience, partly offset by unfavorable Group Benefits morbidity experience and higher expenses. Insurance sales increased 24%, driven by higher individual participating whole life insurance sales and higher large case sales in GB. Wealth sales decreased 13% due to lower defined contribution sales in Group Retirement Services (GRS), partly offset by higher individual wealth mutual fund sales.

SLF U.S.’ underlying net income was $93.3 million (C$110 million), down 8.5% from the prior-year quarter due to an increase in COVID-related claims impacting employee benefits mortality and morbidity experience, and the unfavorable impacts of foreign exchange translation. This was partially offset by morbidity experience in medical stop-loss and mortality claims experience in In-Force Management. Sales decreased 13% year over year due to lower employee benefits and medical stop loss sales.

SLF Asset Management’s underlying net income of $307 million (C$362 million) increased 39.5% year over year, driven by MFS and SLC Management, partially offset by the unfavorable impacts of foreign exchange translation.

SLF Asia reported an underlying income of $122 million (C$145 million), down 0.8% year over year, due to an unfavorable mortality experience in Indonesia and the Philippines related to COVID-19, higher digital investments and the unfavorable impacts of foreign exchange translation. These were partly offset by business growth. Insurance sales decreased 19% year over year due to lower Hong Kong and International sales, partially offset by higher sales in the Philippines and India. Wealth sales increased 48%, driven by mutual fund sales in India, money market sales in the Philippines and the pension business in Hong Kong.

Financial Update

Global assets under management were $1,089.96 billion (C$1,386 billion).

Sun Life Assurance’s Minimum Continuing Capital and Surplus Requirements (LICAT) ratio was 124% as of Sep 30, 2021 versus 127% as of Sep 30, 2020.

The LICAT ratio for Sun Life was 143% as of Sep 30, 2021 versus 144% as of Sep 30, 2020.

Sun Life’s reported return on equity of 17.6% in the third quarter expanded 410 basis points (bps) year over year. Underlying ROE of 15.6% expanded 50 bps year over year.

Leverage ratio of 22.2% at quarter-end deteriorated 70 basis points year over year.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

Currently, Sun Life 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 20% 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 upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Sun Life has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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