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Manulife (MFC) Up 6.8% Since Last Earnings Report: Can It Continue?

A month has gone by since the last earnings report for Manulife Financial (MFC). Shares have added about 6.8% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Manulife due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Manulife Financial Q3 Earnings Beat, Asia Business Strong

Manulife Financial delivered third-quarter 2023 core earnings of 69 cents per share, which beat the Zacks Consensus Estimate by 15%. The bottom line improved 35.3% year over year.

Core earnings of $1.3 billion (C$1.7 billion) increased 28% year over year. The improvement was driven by the absence of a provision in the property and casualty Reinsurance business related to Hurricane Ian in the year-ago quarter. The favorable impact of rising interest rates on expected investment earnings and earnings on surplus assets net of a higher cost of debt financing added to the upside. This apart, better insurance experience in the U.S. and Canada favored quarterly results. The insurer also noted that business growth contributed to the increase in expected earnings on investments and insurance contracts.

New business value (“NBV”) in the reported quarter was $447 million (C$600 million), up 15% year over year, attributable to higher sales volumes in Asia.

New business contractual service margin (“CSM”) of $378 million (C$507 million) rose 6% year over year.

Annualized premium equivalent (“APE”) sales increased 21% year over year to $1.3 billion (C$1.7 billion), attributable to higher sales in Asia.

Wealth and asset management assets under management and administration were $602 billion (C$813 billion), up 4% year over year. The Wealth and Asset Management business generated net outflows of $0.6 billion (C$0.8 billion) against an inflow of C$3 billion in the year-ago quarter. This was attributable to outflows in Retirement as well as Retail.

Core return on equity, measuring the company’s profitability, expanded 410 basis points year over year to 16.8%.

Life Insurance Capital Adequacy Test ratio was 137% as of Sep 30, 2023, up from 131% as of Dec 31, 2022.

Adjusted book value per common share was $30.67, up 4% year over year.

Segmental Performance

Global Wealth and Asset Management’s core earnings came in at $269 million (C$361 million), down 2% year over year.

Asia division’s core earnings totaled $291 million (C$390 million), up 33% year over year. NBV increased 7% year over year, driven by higher sales volumes.  

APE sales increased by 20%, driven by growth in Hong Kong and Asia Other. New business CSM increased 16% year over year, driven by higher sales volumes.

Manulife Financial’s Canada division core earnings of $304 million (C$408 million) were up 4% year over year. NBV increased 72%, driven by higher sales volumes in Individual Insurance and higher margins in Group Insurance.

APE sales jumped 51%, driven by a large affinity market sale.  New business CSM increased by 16%, driven by product mix in Individual Insurance.

The U.S. division reported core earnings of $245 million (C$329 million), down 2% year over year. NBV decreased 29% due to lower sales volumes and product mix, partially offset by pricing actions and higher interest rates.

APE sales decreased by 31% due to the adverse impact of higher short-term interest rates on accumulation insurance products, particularly for our affluent customers. New business CSM decreased by 39% due to lower sales volumes.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month.

VGM Scores

At this time, Manulife has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions has been net zero. Notably, Manulife has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Performance of an Industry Player

Manulife belongs to the Zacks Insurance - Life Insurance industry. Another stock from the same industry, American Equity Investment (AEL), has gained 2.9% over the past month. More than a month has passed since the company reported results for the quarter ended September 2023.

American Equity reported revenues of $586.61 million in the last reported quarter, representing a year-over-year change of -3.8%. EPS of $2.45 for the same period compares with $0.99 a year ago.

American Equity is expected to post earnings of $1.73 per share for the current quarter, representing a year-over-year change of +119%. Over the last 30 days, the Zacks Consensus Estimate has changed +0.7%.

American Equity has a Zacks Rank #2 (Buy) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of B.

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