Shares of Sun Life Financial Inc. SLF have rallied 20% in the past six months, outperforming the industry’s 13% growth. The insurer also outperformed the Zacks S&P 500 composite and the Finance sector’s return of 6.5% and 10.5%, respectively, in the past six months. With a market capitalization of $34.21 billion, the average volume of shares traded in the last three months was 0.5 million.

SLF Outperforms Industry, Sector, S&P in 6 months

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Shares of Sun Life closed at $59.34 on Wednesday, near its 52-week high of $62.85. This proximity underscores investor confidence. It has the ingredients for further price appreciation.

Return on Capital

SLF’s ROE for the trailing 12 months is 17.4%, better than the industry average of 15.5%. This reflects SLF’s efficiency in utilizing shareholders’ funds. Underlying ROE continues to trend toward a medium-term financial objective of 18% plus, thus reflecting a sustained emphasis on capital-light businesses.

Optimistic Growth Projections

The Zacks Consensus Estimate for 2025 earnings per share (EPS) is pegged at $5.37, suggesting an increase of 10.5%.

While earnings have increased 5.4% over the last five years, outperforming the industry average of 4.6%, the long-term earnings growth rate is currently pegged at 7%. Sun Life aims to achieve bottom-line growth of 8-10% over the medium term.

Growth Drivers

Sun Life is focusing on the emerging economies of Asia, which are expected to provide higher returns and growth than the North American markets. It has a solid presence in China, the Philippines, India, Hong Kong and Indonesia and has also forayed into Malaysia and Vietnam. The contribution from Asia business to Sun Life’s earnings has increased to 21% over the last few years.

Sun Life envisions being one of the top five players and remains focused on growing its voluntary benefits business. The life insurer is also improving its business mix and is shifting its growth focus toward products that block lower capital and offer more predictable earnings.

SLF has been working to strengthen Asset Management, which provides a higher return on equity, requires lower capital, witnesses lesser volatility and has the potential for an earnings upside. Thus, Sun Life Investment Management’s investments in private fixed-income mortgages and real estate, as well as in pension plans and other institutional investors, should bear fruit.

Banking on its sturdy capital position, SLF distributes wealth to shareholders in the form of higher dividends and share buybacks. 

Expensive Valuation

The insurer’s shares are trading at a price-to-book multiple of 2.15, higher than the industry average of 1.95. Also, it has a Value Score of B.

SLF is also expensive compared with Manulife Financial Corporation MFC, Lincoln Financial Group LNC and Reinsurance Group of America, Incorporated RGA.

Final Take on SLF

The ongoing shift to fee-based capital-light businesses bodes well for growth. Operational efficiency has been aiding Sun Life in building a strong capital position. Consistent wealth distribution makes it an attractive pick for yield-seeking investors. Its dividend payout ratio is targeted within the 40-50% range. 

Given the premium valuation, investors should wait for a better entry point for this Zacks Rank #3 (Hold) stock. 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

Reinsurance Group of America, Incorporated (RGA) : Free Stock Analysis Report

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

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