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Manulife (MFC) Down 7.1% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for Manulife Financial (MFC). Shares have lost about 7.1% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Manulife due for a breakout? 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 Q2 Earnings Miss on Soft Asia Business

Manulife Financial delivered second-quarter 2022 core earnings of 61 cents per share, which missed the Zacks Consensus Estimate by 1.7%. The bottom line declined 10.3% year over year.

Core earnings of $1.3 billion (C$1.6 billion) decreased 9% from the prior-year quarter. The downside was due to unfavorable impact of markets on seed money investments in new segregated and mutual funds in Corporate and Other and on net fee income in Global WAM as well as lower new business gains across insurance segments, lower in-force earnings in U.S. Annuities and lower fee spread in Global WAM. The downside was limited by in-force business growth in Asia, U.S. Insurance and Canada, higher yields on fixed income investments and gains on AFS equities in Corporate and Other, and improved policyholder experience in the U.S.

New business value (NBV) in the reported quarter was $400 million (C$511 million), down 5% year over year due to lower business in Asia,

Annualized premium equivalent (APE) sales were $1.1 billion (C$1.4 billion), down 1% year over year due to lower sales in Asia.
           
The expense efficiency ratio deteriorated 240 basis points (bps) to 49.2%.

As of Jun 30, 2022, Manulife Financial’s financial leverage ratio deteriorated 260 bps year over year to 28.5%.

Wealth and asset management assets under management and administration were $578 billion (C$744.7 billion), down 6.7% year over year. The Wealth and Asset Management business generated a net inflow of $5.4 billion (C$6.9 billion), down 80.2% year over year.

Core return on equity, measuring the company’s profitability, contracted 180 bps year over year to 12.1% in the second quarter of 2022.

The Life Insurance Capital Adequacy Test (LICAT) ratio was 137% as of Jun 30, 2022, down from 140% as of Mar 31, 2022.

Book value per share excluding AOCI increased 11.4% to $25.49 as of Jun 30, 2022.

Segmental Performance

Global Wealth and Asset Management division’s core earnings came in at $239 million (C$305 million), down 14.3% year over year.

Asia division’s core earnings totaled $402 million (C$513 million), down 2.5% year over year.  In Asia, NBV decreased 17%, reflecting lower sales in Hong Kong, Japan corporate owned life insurance ("COLI") and Asia Other, as well as an unfavorable product mix in Asia Other, partially offset by higher individual protection and other wealth sales in Japan. APE sales decreased 12%, reflecting continued adverse impacts from COVID-19 in Hong Kong, lower COLI product sales in Japan, and lower sales in Asia Other.

Manulife Financial’s Canada division core earnings of $270 million (C$345 million) were up 8.5% year over year. NBV increased 8% year over year, driven by higher volumes in large-case group insurance, partially offset by a less favorable business mix in Insurance. APE sales increased 32%, driven by higher large-case group insurance and individual insurance par sales, partially offset by lower segregated fund sales.

The U.S. division reported core earnings of $357 million (C$456 million), down 4.6% year over year. NBV increased 18% year over year, driven by improved margins due to product actions, higher international sales volumes, and higher interest rates. APE sales increased 6%, strong international sales, which are reported as part of the U.S. segment results.

Loss at Corporate and Other was $123 million (C$157 million), increasing 63.5% year over year.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates flatlined 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 an A. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

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

Outlook

Manulife has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.


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