Manulife Financial Corp. (TSX:MFC): Strong Execution Translates Into Strong Results
The Motley Fool
Published Nov 09, 2018 09:30
Updated Nov 09, 2018 10:15
Manulife Financial Corp (TSX:MFC)(NYSE:MFC) pleased investors with its third-quarter earnings report earlier this week, reporting significantly better-than-expected EPS of $0.75 (compared to consensus estimates of $0.67).
This resulted in a very strong reaction from its stock, sending it more than 5% higher the day after the report.
But that’s not all.
A few days before its earnings release, the company released a statement saying that it would be increasing its dividend by 14% this year, in a move that came earlier than expected.
Furthermore, the dividend increase is higher than expected and compares favourably to last year’s increase of 7%.
Manulife stock has been trading at a discount relative to other life insurers but also relative to its own earnings growth and potential.
Investor skepticism, short-sellers , and a very public legal dispute has kept investors away despite the company actually reporting good results for some time now.
Reasons to own
With a market capitalization in excess of $50 billion, Manulife is a force to be reckoned with, with a strong past and a very promising future.
In the last five years, the company has seen a 15% compound annual growth rate (CAGR) in core EPS, a 28% CAGR in the business value in Asia, and strong growth in its global wealth and asset management business, with a 20% CAGR in assets under management.
And all this while maintaining a strong capital position.
Manulife continues to see strong growth in wealth and asset management, and in its expansion in Asia, making it so much more than a Canadian life insurer.
As evidence of this, we can just look to the third-quarter of 2018 results. Manulife posted a better-than-expected 27% increase in core earnings, earnings per share of $0.75; the company generated an ROE of 15.1%, up from last quarter and above its targeted range, and a solid improvement.
Core earnings in Asia were up 22% year-over-year, reflecting continued growth in that region and reflecting the general thesis.
Manulife stock is currently trading at a dividend yield of 4.45%.
Not only that, but the dividend has been growing. The dividend was increased five times in the last six years, with the latest one being the recently announced 14% increase.
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According to Manulife, a 50-basis-point increase in interest rates would have a $100 million impact on net income and have a meaningful effect on its MCCSR ratio, or its Minimum Continuing Capital and Surplus Requirement Ratio.
The company has been performing above expectations recently and management has bold targets of generating $1 billion of savings by 2022.
Manulife stock still trades at a P/E of roughly 9 times this year’s earnings, which is over 10 times below its peer group and its historical range.
Fool contributor Karen Thomas has no position in any of the stocks mentioned.
This Article Was First Published on The Motley Fool
Written By: The Motley Fool
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