Manulife: Lowered Earnings Don't Worry Analysts

| About: Manulife Financial (MFC)

By Tara Perkins

Analysts are weighing in on Manulife Financial’s (NYSE:MFC) announcement that it is lowering its estimate of adjusted earnings from operations. While the news (like many announcements that are made late on a Friday) was certainly negative, it appears that many analysts don’t view it as material enough to change their forecasts.

Manulife has only been providing its “adjusted earnings from operations” to the market since mid-2009. The idea was to give the Street a better sense of the insurer’s underlying earnings potential, something that became harder to gauge after tumbling stock markets started biting into profits and forcing Manulife to raise capital (its large variable annuity business had caused it to have massive exposure to equity markets).

The company had previously said that its estimate of adjusted earnings from operations for each quarter in 2010 was $750 million to $850 million. On Friday it revised that down to $700 million to $800 million, because of changes to the way it books gains from its Japanese variable annuity business.

“While the shift had no impact on net earnings (or GAAP earnings), this announcement is unlikely to soothe investor concerns about the long-term earnings potential of Manulife,” BMO Capital Markets analyst John Reucassel wrote in a note to clients.

“We view this as negative as it adds to the confusion around core earnings,” TD Securities analyst Doug Young said in a note to clients. (On a side note, there’s an interesting irony in the idea that the extra accounting measure that Manulife is providing to the market is adding to confusion.)

Unlike both of those analysts, who did not change their earnings estimates Monday, Genuity Capital Markets analyst Mario Mendonca said “while there is no change in GAAP earnings, this does have an impact on the company’s definition of normalized earnings, and our outlook and perspective on earnings and earnings quality.”

He’s lowered his expected profit margin for the company, and - taking into account his latest expectations for corporate bond yields, stock markets, and the exchange rate - has revised his 2010 share earnings estimate down from $1.57 to $1.31.

Mr. Mendonca said that Manulife’s new estimates are based on an exchange rate of C$1.16/US$, which is where the rate was in mid-2009.