We are reiterating our Neutral recommendation on Sun Life Financial Inc. (SLF) following the first quarter earnings release. Sun Life’s Financial Inc. announced first-quarter 2013 net operating earnings $444 million (C$448 million) , improving 2.5% over first quarter 2012. Sun Life retains a Zacks Rank #3 (Hold).
Why reiterate?
Sun Life is a leading Canadian life insurance company, with an active presence in the U.S. Over the long term we believe the company will be able to generate superior returns for its investors given a proactive approach to managing and mitigating fundamental issues.
Sun Life is seeking to grow internationally. It is specifically focusing on the emerging economies of Asia, which is expected to provide higher return and growth compared to the North American markets.
The company is also making business mix changes in its U.S. segment to reduce the equity market exposure and limit its interest rate exposure.
At the same time, Sun Life is aggressively seeking to grow its Global Asset Management Business, which has been witnessing growing asset base for the past many quarters. This business provides higher ROE, lower capital, and lower volatility. It has the potential to provide earnings upside.
Along with doing away with high equity/interest rate risk products, Sun Life has implemented hedging to reduce earnings and capital sensitivity to interest rates and equity markets. The company stands better than its peers in terms of managing hedging these risks.
Nevertheless, these positives are dwarfed by the historically low interest rate environment that is expected to continue to have a significant negative impact on the company’s operations. The company’s leverage ratio has also increased due to requirement for additional regulatory capital.
Following the first quarter results, the Zacks Consensus estimate for 2013 moved up by 2.9% to $2.67 as 2 of 3 estimates moved north in the last 30 days. For 2014, 2 of 3 estimates were raised pushing the Zacks Consensus estimate by 1.5% to $2.75 over the same time frame.
Other Stocks
Other life insurers StanCorp Financial group Inc. (SFG), Protective Life Inc. (PL) both carrying a Zacks Rank #1 (Strong Buy) and China Life Insurance Co. (LFC), carrying Zacks Rank #2 (Buy) are worth considering
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