By David Berman
Canadian insurance companies were hit relatively hard on Wednesday, following disappointing quarterly results from Manulife Financial Corp. (MFC) and Sun Life Financial Inc (SLF). Investors may have been particularly miffed because some analysts and strategists have recently switched their enthusiasm among financial stocks toward insurance companies and away from banks, arguing that recovering stock markets would deliver bigger rewards.
So what are analysts saying now? Generally, they held their recommendations and target prices on the two stocks, although RBC Capital Markets cut its recommendation on Manulife to "sector perform" from "outperform" and reduced its target to $22 from $24. Here are a few comments.
Michael Goldberg, Desjardins Securities, on Manulife:
“Manulife’s stock was penalized yesterday for one simple reason: its reported earnings per share missed consensus expectations.... The company has greatly reduced its equity sensitivity, appears far less credit sensitive than Great-West (GWLOF.PK) and Sun, and while it is highly sensitive to interest rates, higher rates would be a big positive. Capital is at fortress levels and still getting stronger. Despite these positives, the stock sells at a significant discount valuation to peers.”
Goldberg on Sun Life:
“Credit issues have been an ongoing concern at Sun. In the latest quarter, credit-related charges again pulled down earnings. Additionally, our credit barometer that looks at extended unrealized losses weakened materially. On top of these issues, Sun’s normalized earnings were at the low end of management’s indicated range. While we are maintaining our ‘hold’ rating and $34 target price over a 12-month horizon, we expect the stock to underperform in the near term.”
Doug Young, TD Newcrest, on Sun Life:
“As we’ve stated many times, over the short term we expect its results to remain noisy, and for credit losses to be the main headwind. That said, we believe Sun Life remains sufficiently capitalized, as credit conditions turn it should benefit the most, and we still view its valuation as attractive.”
