Sun Life Financial SLF is riding on strong foothold in Asia, expanding global asset management and a solid financial position. The company currently carries an impressive VGM Score of B. Here V stands for Value, G for Growth and M for Momentum, with the score being a weighted combination of all three factors.
Return on equity of 13.8% in the trailing 12 months was better than the industry average of 11.4%, reflecting the company’s efficiency in utilizing shareholders’ funds. It estimates generating underlying ROE of 12-14% over the medium term.
Why Hold is an Apt Strategy?
This Zacks Rank #3 (Hold) life insurer expects to witness underlying earnings per share rise of 8-10% per annum over the medium term. The expected long-term earnings growth is pegged at 9%, higher than the industry average of 5.5%. It has a favorable Growth Score of B. This style score analyzes the growth prospects of the company.
The third largest insurer in Canada remains focused on the emerging economies that are expected to provide higher return than the North American markets. Continuous strategic investments in Asia are in tandem with its growth strategy. It is shifting focus toward products that park lower capital and offer more predictable earnings. Aiming a spot within top five players, the company is growing its voluntary benefits business.
Sun Life is aggressively trying to boost its Global Asset Management Business, which has been witnessing a rise in asset base for the past quarters. The company currently has $1.1 trillion worth of assets under management.
Acquisitions have been an important part of the company’s growth strategy. It acquired a majority stake in InfraRed Capital Partners to broaden management suite of alternative investment solutions. It is also contemplating to acquire Crescent Capital Group, the $28-billion worth credit manager, per sources. This acquisition is in line with the strategy to invest in the low investment grade private credit space.
Sun Life Financial possesses a solid capital and cash position, along with a low leverage ratio. Its targets leverage of 25% for the long term. Its stable cash flow profile supports an attractive annual dividend, yielding 3.7%, and tops the industry average of 3.4%, making this an attractive pick for yield seeking investors. The company expects dividend payout ratio of 40-50% of earnings over the medium term.
Shares of Sun Life Financial have lost 7.1% year to date, narrower than the industry’s decline of 20.8%. The company’s expenses are witnessing a rise, which is weighing on margin expansion. Also, hedging costs are exerting pressure on earnings.
Nonetheless, the Zacks Consensus Estimate for 2020 and 2021 earnings has moved up 3.4% and 1.8%, respectively, in the past 60 days, reflecting analysts’ optimism.
Stocks to Consider
Some better-ranked stocks are Manulife Financial Corp MFC, Fidelity National Financial Inc. FNF and First American Financial Corporation FAF, each presently carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Manulife Financial surpassed estimates in two of the last four quarters, with the average being 6.79%.
Fidelity National surpassed estimates in each of the last four quarters, with the average being 32.13%.
First American Financial surpassed estimates in each of the last four quarters, with the average being 20.84%.
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