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Here's Why Should You Stay Invested in Manulife (MFC) Stock
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Manulife Financial Corporation (MFC - Free Report) is set to gain from the strength of its Asia business, its expanding Wealth and Asset Management business and a solid capital position. These, along with solid growth projections, make the stock worth retaining.
This Zacks Rank #3 (Hold) life insurer has a decent history of delivering surprises for the last six quarters. It has a VGM Score of B.
An Outperformer
Shares have rallied 20.4% year to date, outperforming the industry’s increase of 9%, the Finance sector’s increase of 5.2% and the S&P 500 composite’s rise of 15%.
Optimistic Growth Projection
The Zacks Consensus Estimate for 2024 and 2025 earnings per share (EPS) is pegged at $2.74 and $2.96, respectively, suggesting an increase of 6.6% and 8% year over year.
The long-term earnings growth rate is currently pegged at 10%. Manulife expects core EPS growth of 10-12% over the medium term.
Return on Equity
Manulife’s return on equity (ROE) for the trailing 12 months is 16.3%, better than the industry average of 15.5%. This reflects Manulife’s efficiency in utilizing shareholders’ funds. It expects to generate a ROE of 18% by 2027, up from 15% expected earlier.
Northbound Estimate Revision
The Zacks Consensus Estimate for MFC’s 2024 and 2025 earnings has moved 4 cents and 3 cents north, respectively, in the past 60 days, reflecting analyst optimism.
Growth Drivers
Manulife is continuously growing its Asia business and now expects core earnings from Asia to contribute 50% to earnings by 2027. Asia has been the fastest-growing insurance segment, supported by strong volume growth and attractive margins. This market appears attractive, given its changing demographics.
The life insurer is also investing in high ROE and growth segments in North America to achieve strategic priorities.
Manulife’s highest potential businesses, including operations in Asia, Global WAM, Canada group benefits and behavioral insurance products, currently contribute two-thirds to core earnings. The insurer now looks to increase it to 75% and thus is expediting growth in these highest potential businesses.
Manulife Asset Management has identified Europe (and the wider EMEA market) as a significant growth area and is making long-term investments in the region
In tandem with the wave of accelerated digitalization in the insurance industry, MFC too is digitalizing and automating workflows through GenAI and advanced analytics. Manulife targets an expense efficiency ratio of less than 45% in the medium term.
Manulife has been strengthening its balance sheet by improving liquidity and leverage. It targets a leverage ratio of 25%. Notably, its free cash flow conversion has remained more than 100% over the last many quarters, reflecting its solid earnings.
Wealth Distribution
The life insurer, banking on consistent cash flow, hiked dividends at a six-year CAGR of 10% and targets a 35-45% dividend payout over the medium term.
Risks
Despite the upside potential, there are a few factors that investors should keep an eye on.
Manulife draws a substantial portion of its earnings from the international market, which makes its profitability vulnerable to foreign exchange losses. In an attempt to lower its forex exposure, the company has started incurring hedging costs.
Manulife has been forced to raise its reserves to guarantee future liabilities. We anticipate higher reserve charges for its equity-linked products, which will also hurt its earnings.
Reinsurance Group delivered a four-quarter average earnings surprise of 19.48%. The stock has gained 26.9% year to date. The Zacks Consensus Estimate for RGA’s 2024 and 2025 earnings implies a 3.9% and 4.3% year-over-year increase, respectively.
Palomar’s earnings surpassed estimates in each of the last four quarters, the average earnings surprise being 15.10%. In the past year, PLMR’s stock has surged 40.9%. The Zacks Consensus Estimate for PLMR’s 2024 and 2025 earnings indicates 26% and 18% year-over-year growth, respectively.
ProAssurance earnings surpassed estimates in two of the last four quarters and missed in the other two. In the past year, PRA’s stock has lost 10.4%. The Zacks Consensus Estimate for PRA’s 2024 and 2025 earnings implies 371.4% and 72.6% year-over-year growth, respectively.
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Here's Why Should You Stay Invested in Manulife (MFC) Stock
Manulife Financial Corporation (MFC - Free Report) is set to gain from the strength of its Asia business, its expanding Wealth and Asset Management business and a solid capital position. These, along with solid growth projections, make the stock worth retaining.
This Zacks Rank #3 (Hold) life insurer has a decent history of delivering surprises for the last six quarters. It has a VGM Score of B.
An Outperformer
Shares have rallied 20.4% year to date, outperforming the industry’s increase of 9%, the Finance sector’s increase of 5.2% and the S&P 500 composite’s rise of 15%.
Optimistic Growth Projection
The Zacks Consensus Estimate for 2024 and 2025 earnings per share (EPS) is pegged at $2.74 and $2.96, respectively, suggesting an increase of 6.6% and 8% year over year.
The long-term earnings growth rate is currently pegged at 10%. Manulife expects core EPS growth of 10-12% over the medium term.
Return on Equity
Manulife’s return on equity (ROE) for the trailing 12 months is 16.3%, better than the industry average of 15.5%. This reflects Manulife’s efficiency in utilizing shareholders’ funds. It expects to generate a ROE of 18% by 2027, up from 15% expected earlier.
Northbound Estimate Revision
The Zacks Consensus Estimate for MFC’s 2024 and 2025 earnings has moved 4 cents and 3 cents north, respectively, in the past 60 days, reflecting analyst optimism.
Growth Drivers
Manulife is continuously growing its Asia business and now expects core earnings from Asia to contribute 50% to earnings by 2027. Asia has been the fastest-growing insurance segment, supported by strong volume growth and attractive margins. This market appears attractive, given its changing demographics.
The life insurer is also investing in high ROE and growth segments in North America to achieve strategic priorities.
Manulife’s highest potential businesses, including operations in Asia, Global WAM, Canada group benefits and behavioral insurance products, currently contribute two-thirds to core earnings. The insurer now looks to increase it to 75% and thus is expediting growth in these highest potential businesses.
Manulife Asset Management has identified Europe (and the wider EMEA market) as a significant growth area and is making long-term investments in the region
In tandem with the wave of accelerated digitalization in the insurance industry, MFC too is digitalizing and automating workflows through GenAI and advanced analytics. Manulife targets an expense efficiency ratio of less than 45% in the medium term.
Manulife has been strengthening its balance sheet by improving liquidity and leverage. It targets a leverage ratio of 25%. Notably, its free cash flow conversion has remained more than 100% over the last many quarters, reflecting its solid earnings.
Wealth Distribution
The life insurer, banking on consistent cash flow, hiked dividends at a six-year CAGR of 10% and targets a 35-45% dividend payout over the medium term.
Risks
Despite the upside potential, there are a few factors that investors should keep an eye on.
Manulife draws a substantial portion of its earnings from the international market, which makes its profitability vulnerable to foreign exchange losses. In an attempt to lower its forex exposure, the company has started incurring hedging costs.
Manulife has been forced to raise its reserves to guarantee future liabilities. We anticipate higher reserve charges for its equity-linked products, which will also hurt its earnings.
Stocks to Consider
Some top-ranked stocks from the insurance space are Reinsurance Group of America (RGA - Free Report) , Palomar Holdings (PLMR - Free Report) and ProAssurance (PRA - Free Report) . Each stock presently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Reinsurance Group delivered a four-quarter average earnings surprise of 19.48%. The stock has gained 26.9% year to date. The Zacks Consensus Estimate for RGA’s 2024 and 2025 earnings implies a 3.9% and 4.3% year-over-year increase, respectively.
Palomar’s earnings surpassed estimates in each of the last four quarters, the average earnings surprise being 15.10%. In the past year, PLMR’s stock has surged 40.9%. The Zacks Consensus Estimate for PLMR’s 2024 and 2025 earnings indicates 26% and 18% year-over-year growth, respectively.
ProAssurance earnings surpassed estimates in two of the last four quarters and missed in the other two. In the past year, PRA’s stock has lost 10.4%. The Zacks Consensus Estimate for PRA’s 2024 and 2025 earnings implies 371.4% and 72.6% year-over-year growth, respectively.