Manulife (MFC) Down 41.1% 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 41.1% 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 drivers.

Manulife's Q4 Earnings Rise Y/Y on Business Growth

Manulife Financial Corporation delivered fourth-quarter 2019 core earnings of $1.1 billion (C$1.5 billion), up 22.2% year over year. This upside can be attributed to in-force and new business growth in the United States, Hong Kong and Asia Other, progress in Global Wealth and Asset Management and the non-recurrence of market losses on seed money investments in the company’s surplus portfolio.

New business value in the reported quarter was $398.5 million (C$526 million), up 5.1% year over year on the back of Canada new business value and U.S. new business value.

Annualized premium equivalent (APE) sales were almost flat year over year, leading to $1.1 billion (C$1.5 billion).

As of Dec 31, 2019, Manulife Financial’s financial leverage ratio contracted 350 basis points (bps) to 25.1% from the level on Dec 31, 2018.

As of Dec 31, 2019, wealth and asset management assets under management and administration were $516.6 billion (C$681.4 billion), down 2.9% year over year.

Core return on equity, measuring the company’s profitability, is flat at 12.5%.
The Office of the Superintendent of Financial Institutions' new Life Insurance Capital Adequacy Test (LICAT) regulatory capital regime came into effect in Canada on Jan 1, 2018, replacing the Minimum Continuing Capital and Surplus framework. LICAT ratio was 140% as of Dec 31, 2019, down from 143% as of Dec 31, 2018.

Full-Year Highlights

Core earnings of C$6 billion in 2019 were up 5% from the level in 2018. The company witnessed growth in Asia and Global Wealth and Asset Management, more new business, better investment income and the non-recurrence of 2018 market losses on seed money investments in surplus portfolio.

In Asia, it delivered an 8% increase in new business value to C$1.1 billion during 2019. This can be mainly attributable to growth in Hong Kong
and Asia Other. However, the same was offset by a decline in Japan sales.

Expense efficiency ratio improved 100 bps to 54.2%.

Segmental Performance

Global Wealth and Asset Management division’s core earnings came in at $200.8 million (C$265 million), up 14.7% year over year.

Asia division’s core earnings totaled $374.2 million, down 18.5% year over year.

Manulife Financial’s core earnings in Canada division were $218.2 million (C$288 million), down 7.6% year over year. Annualized premium equivalent sales of $205.3 million (C$271 million) dipped 2.1% year over year.

The U.S. division reported core earnings of $370.4 million (C$489 million), down 20.3% year over year. Annualized premium equivalents sales of $115 million (C$271 million) decreased 24% year over year.

Dividend Update

The board of directors declared a dividend hike of 12%, to be paid out on and after Mar 19, 2020 to its shareholders as of Feb 25, 2020.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -7.26% due to these changes.

VGM Scores

At this time, Manulife has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the top 40% 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

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