Sun Life (SLF) Stock Up 17% YTD: Can it Retain the Momentum?
Focus on Asia operation, growing asset management businesses and sturdy financial position continue to drive Sun Life (SLF).
Shares of Sun Life Financial Inc. SLF have gained 16.7% year to date against the industry’s decrease of 0.5%. The Finance sector and the Zacks S&P 500 composite have rallied 21% and 20.6%, respectively. With a market capitalization of about $30.4 billion, average volume of shares traded in the last three months was 0.7 million.
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Focus on Asia operation, growing asset management businesses and sturdy financial position continue to drive Sun Life. It has a solid track of beating earnings estimates in the last eight quarters, the average surprise being 11.85%.
Return on equity in the trailing 12 months was 14.1%, better than the industry average of 13.7%, reflecting the company’s efficiency in utilizing shareholders’ fund. It targets medium-term ROE 12% to 14%.
The Zacks Consensus Estimate for 2021 and 2022 earnings has moved up 0.4% and 0.8%, respectively, in the past 30 days, reflecting analysts’ optimism.
Will the Bull Run Continue?
The Zacks Consensus Estimate for 2021 and 2022 indicates year-over-year improvement of 14.6% and 8.5% respectively. The expected long-term earnings growth rate is pegged at 9% while Sun Life targets bottom-line growth of 8-10% per annum over the medium term.
The company is well poised for progress, as is evident from its favorable VGM Score of B. Here V stands for Value, G for Growth and M for Momentum, with the score being a weighted combination of all three factors.
Sun Life is continually expanding in Asia, which provides higher return and growth than the North American markets. It already has a strong presence in China, Philippines, India, Hong Kong and Indonesia, and has also forayed into Malaysia and Vietnam. Contribution from the Asia business to its overall earnings has accelerated in the last few years.
This largest independent provider of medical stop-loss insurance in the United States is shifting its growth focus toward products that park lower capital and offer more predictable earnings, such as mutual funds and group benefits. The company is also growing its voluntary benefits business and targeting a place among the top five players. Acquisition of Pinnacle Care in July 2021 will consolidate Sun Life's U.S. Stop-Loss & Health business.
Sun Life is looking to make investment in the private credit domain, which ensures a greater yield, thus creating an opportunity to generate higher income. The buyout of the majority stake in Crescent Capital Group in January 2021 is in tandem with the strategy.
The company has been expanding its Wealth and Asset Management business. Sun Life Investment Management continues to boost its investment capabilities in private fixed income, mortgages and real estate by investing in pension plans and institutional investors.
Sun Life had excess cash of $3.2 billion as on Jun 30, 2021. It boasts healthy capital and cash positions along with a low leverage ratio. Over the long term, it targets financial leverage ratio of 25.
This Zacks Rank #3 (Hold) life insurer has grown dividend at a five-year (2016-2020) CAGR of 8%. Its five-year total stockholders’ return of 58% has outperformed the TSX Financial Se’s increase of 57% and TSX Composite’s rise of 56%.
This third largest life insurer in Canada targets 40-50% dividend payout over the medium term.
Stocks to Consider
Some better-ranked stocks from the insurance space include Athene Holding ATH, Brighthouse Financial BHF, and Lincoln National Corporation LNC, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Athene Holding delivered an earnings surprise of 48.24% in the last reported quarter.
Brighthouse Financial delivered an earnings surprise of 70.51% in the last reported quarter.
Lincoln National delivered an earnings surprise of 31.54% in the last reported quarter.
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