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Sun Life Stock Near 52-Week High: What Investors Should Know?

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Shares of Sun Life Financial Inc. (SLF - Free Report) closed at $56.08 on Friday, near its 52-week high of $56.16. This proximity underscores investor confidence. It has the ingredients for further price appreciation. The stock is trading above the 50-day and 200-day simple moving average (SMA) of $51.38 and $51.58, respectively, indicating solid upward momentum. SMA is a widely used technical analysis tool to predict future price trends by analyzing historical price data.

Earnings of Sun Life grew 5.4% in the last five years, better than the industry average of 4.6%. SLF has a solid surprise history. The life insurer has a solid track record of beating earnings estimates in three of the last four quarters while missing in one, the average being 1.76%.

Shares of this third-largest insurer in Canada have gained 8.2% year to date compared with the industry and the Zacks S&P 500 composite’s return of 17.8% each.

SLF YTD Price Performance

Zacks Investment Research
Image Source: Zacks Investment Research

Mixed Analyst Sentiment for SLF

Four of the six analysts covering the stock have raised estimates for 2025 over the past 60 days. Two analysts have lowered estimates for 2025. 

The Zacks Consensus Estimate for 2025 earnings has moved up 0.5% in the past 60 days, reflecting analysts’ optimism.

The Zacks Consensus Estimate for 2024 implies a 3.1% year-over-year increase, while the same for 2025 suggests a rise of 10.3% year over year.

Sun Life’s Favorable Return on Capital

Return on equity in the trailing 12 months was 17.4%, better than the industry average of 15.5%. This highlights the company’s efficiency in utilizing shareholders’ funds. 

Also, the return on invested capital (ROIC) has been increasing over the last few quarters as the company raised its capital investment over the same time frame, reflecting SLF’s efficiency in utilizing funds to generate income. ROIC in the trailing 12 months was 0.7%, better than the industry average of 0.6%.

Key Points to Note for SLF

Sun Life’s focus on the emerging economies of Asia that are expected to provide higher returns and the North American markets bodes well for long-term growth. SLF has a strong presence in China, the Philippines, India, Hong Kong and Indonesia and also forayed into Malaysia and Vietnam. Contribution from Asia business to Sun Life’s earnings has increased to 21% over the last few years.

Sun Life looks to be one of the top five players and remains focused on growing its voluntary benefits business. The life insurer is also improving its business mix and is thus shifting its growth focus toward products that block lower capital and offer more predictable earnings.

Sun Life Investment Management makes investments in private fixed-income mortgages and real estate. It invests in pension plans and other institutional investors. These are indicative of SLF’s efforts to strengthen Asset Management, which provides a higher return on equity, requires lower capital, sees lesser volatility and has the potential for an earnings upside.

Operational efficiency has been aiding Sun Life in building a strong capital position. The life insurer’s capital outlay includes a 40-50% dividend payout over the medium term.

Risks for SLF

Expenses have increased at Sun Life over the past few years due to high employee expenses, premises and equipment, service fees, amortization of intangible assets and other expenses. These, in turn, weigh on margin expansion. The life insurer remains committed toward balancing both metrics, failing which, the bottom line might suffer. The life insurer estimates integration activities to drive run-rate cost savings of $60 million by 2024.

SLF’s Expensive Valuation

The stock is overvalued compared to its industry. It is currently trading at a price-to-earnings multiple of 10.74, higher than the industry average of 8.33. 

Shares of other insurers like Reinsurance Group of America, Incorporated (RGA - Free Report) and Manulife Financial Corp (MFC - Free Report) are also trading at a multiple higher than the industry average.

However, shares of Brighthouse Financial, Inc. (BHF - Free Report) are trading at a multiple lower than the industry average.

Wrapping Up: Keep on Holding

Sun Life Financial's favorable growth estimates, financial stability and favorable return on capital make it an attractive stock to retain for current investors. 

Despite its expensive valuation, SLF should benefit from its focus on Asia operations, growing asset management businesses and the scale-up and integration of U.S. operations. It is, therefore, wise to hold on to this Zacks Rank #3 (Hold) stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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