Analysts Cautious After Sun Life Financial's 'Record' Quarter

Despite Sun Life Financial Inc. (SLF) turning in record operating earnings in the first quarter of 2007, the insurer’s performance was “surprisingly weak” after taking into account outsized profits from operations in the U.K. and poor results at the company’s U.S. Division, said National Bank Financial analyst Rob Wessel.

Sun Life’s core earnings per share grew 13% compared to the previous quarter. But first-quarter net income increased only 1.2% to C$497-million from C$491-million a year earlier.

Highlights were the performance at Boston-based MFS Investment Management where earnings were up 38% to C$72-million and Sun Life Asia whose earnings jumped 46% to C$38-million.

Profits from Sun Life’s U.K. operations more than doubled to C$100-million “driven by mortgage endowment cost reimbursements and favourable movements in annuity reserves and deferred tax liabilities,” Mr. Wessel said.

But the quarter was nevertheless “out of step” with strong results in previous reporting periods, he said. Sun Life’s Canadian insurance business — the company’s largest segment — posted a relatively modest 5% growth in earnings. Individual insurance and wealth management were the weakest performers.

The company’s U.S. Insurance operation said earnings dropped 22%, to C$98-million, with weakness in individual life insurance and group life and health insurance.

UBS Investment Research analyst Jason Bilodeau cautioned investors will need some patience. Sun Life’s stock fell on the earnings release. But Mr. Bilodeau said he remains “on the sidelines.”

“A number of recent operational improvements have rightfully been reflect in better sentiment,” Mr. Bilodeau said.

National Bank’s Rob Wessel has a “sector perform” rating on Sun Life and reduced his 12-month target price to C$55 from C$57 previously.

Mr. Bilodeau rates the stock “neutral” with an unchanged price target of C$57.