Manulife Financial Corporation MFC shares have rallied 47.9% year to date, outperforming the industry’s growth of 31.5%, the Finance sector’s increase of 20.9% and the S&P 500 Composite’s gain of  24.4%. With a market capitalization of $57.4 billion, the average volume of shares traded in the last three months was 1.9 million.

The strength of its Asia business, expanding Wealth and Asset Management business and solid capital position continue to drive this life insurer. Manulife is one of the three dominant life insurers within its domestic Canadian market and possesses rapidly growing operations in the United States and several Asian countries. The insurer has delivered an earnings surprise in the last eight quarters.
 

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MFC shares are trading well above the 50-day moving average, indicating a bullish trend. The stock is trading near the high end of its 52-week range. 

Return on Equity (ROE)

Manulife’s ROE for the trailing 12 months is 16%, better than the industry average of 15.5%. This reflects Manulife’s efficiency in utilizing shareholders’ funds. It targets 18% ROE over the medium term.

Optimistic Growth Projections

The Zacks Consensus Estimate for 2024 and 2025 earnings per share (EPS) is pegged at $2.74 and $3.00, indicating an increase of 6.6% and 9.2%, respectively.

While earnings have increased 4.9% over the last five years, outperforming the industry average of 4.6%, the long-term earnings growth rate is currently pegged at 10%. Manulife targets core EPS growth between 10% and 12% over the medium term. 

Growth Drivers

Given that its Asia business is reaping solid operational results, Manulife targets it to account for half of its core earnings by 2025 and play a crucial role in its long-term growth. Thus, the insurer is continually scaling up its business across Asia. We believe MFC is well-poised to benefit from continued business growth momentum, higher expected earnings on insurance contracts and higher expected investment earnings, with notable growth from the largest in-force business, Hong Kong, and expanding distribution network.

Manulife is expanding its Wealth and Asset Management business and has identified Europe (and the wider EMEA market) as a significant growth area. It is making long-term investments in this region. 

MFC has been accelerating growth in the highest-potential businesses. Its inorganic growth is impressive, as this life insurer prudently deploys capital in high-growth, less capital-intensive and higher-return businesses.

In tandem with continuous digitalization in the insurance industry, Manulife is continually building on its digital platform and accelerating the adoption of new technologies such as generative AI. 

Banking on its sturdy capital position, MFC distributes wealth to shareholders through higher dividends and share buybacks. The company has increased its dividend at a seven-year CAGR of 10% and targets a 35-45% dividend payout over the medium term. 

MFC is strengthening its balance sheet and thus targets a leverage ratio of 25%. Notably, its free cash flow conversion has remained more than 100% over the last few quarters, reflecting its solid earnings.

Average Target Price for MFC Suggests an Upside

Based on short-term price targets offered by 12 analysts, the Zacks average price target is at $33.03 per share. The average suggests a potential 2.7% upside from Thursday’s closing price of $32.68.

Attractive Valuation

The company’s shares are trading at a price-to-book multiple of 1.72, lower than the industry average of 2.04. Before valuation expands, it is wise to take a position in the stock. This insurer has a Value Score of A, reflecting an attractive valuation.

The stock is also cheaper than Sun Life Financial SLF but expensive compared to Lincoln Financial Group LNC. 

Parting Thoughts

Manulife is set to grow on solid Asia business, growing Wealth and Asset Management business, strong free cash flow conversion ratio and a strong capital position. A medium-term expense efficiency ratio target of less than 45%, banking on diligent expense management, should drive growth. It also has a VGM Score of B.

Consistent wealth distribution makes it an attractive pick for yield-seeking investors. Favorable ROE and attractive valuation make this Zacks Rank #2 (Buy) stock a strong contender to be added to one’s portfolio. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Lincoln National Corporation (LNC) : Free Stock Analysis Report

Manulife Financial Corp (MFC) : Free Stock Analysis Report

Sun Life Financial Inc. (SLF) : Free Stock Analysis Report

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