On Jan 11, 2015 we issued an updated research report on Manulife Financial Corporation MFC.
Manulife’s U.S. division has been witnessing a decline in earnings due to low interest rates. The Canadian division too has been generating lower-than-expected earnings given intense competition. The low interest rate environment and stiff competition are expected to weigh on these units further, thereby affecting earnings adversely.
Additionally, volatile global equity markets and low bond yields are deterrents to the company’s capital position and, hence, Manulife was forced to raise its reserves to support its future liabilities. This has been weighing on the company’s bottom line. Going forward, the life insurer is expected to continue this particular trend of raising its reserves that will expectedly weigh heavily on its earnings. Another headwind for the company is its susceptibility to foreign exchange volatility, which makes it incur significant hedging costs.
However, a growing asset management business, along with a strong foothold in Asia, will possibly drive long-term growth. The company has also been consistently engaging in the expansion of its wealth and asset management business, reflecting positive net flows.
Manulife is expected to report fourth-quarter 2015 results in the second week of February. Our proven model does not conclusively show that the company is likely to beat estimates this earnings season. This is because Manulife has an Earnings ESP of 0.00% as both the Most Accurate Estimate and the Zacks Consensus Estimate are currently pegged at 33 cents. The company’s ESP of 0.00% makes surprise prediction difficult. Also, the insurer carries a Zacks Rank #5 (Strong Sell), which lowers the predictive power of ESP.
Stocks to Consider
Some better-ranked stocks from the insurance space are Primerica, Inc PRI, Reinsurance Group of America Inc. RGA and Hallmark Financial HALL. While Primerica and Reinsurance Group hold a Zacks Rank #2 (Buy), Hallmark sports a Zacks Rank #1 (Strong Buy).
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