Shares of Sun Life Financial Inc. SLF have risen 3% in the past year. It, however, underperformed the industry’s growth of 13.1%, the Finance sector’s return of 14.5% and the S&P 500 composite’s appreciation of 7.6%.

With a market capitalization of $32.40 billion, the average volume of shares traded in the last three months was 0.7 million.

SLF One Year Price Performance

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Sun Life closed at $56.71 on Wednesday and is trading above the 200-day simple moving average (SMA) of $55.31, indicating solid upward momentum. SMA is a widely used technical analysis tool to predict future price trends by analyzing historical price data.

SLF’s Growth Projection Encourages

The Zacks Consensus Estimate for Sun Life’s 2025 earnings per share indicates a year-over-year increase of 6.3%. The consensus estimate for revenues is pegged at $25.73 billion, implying a year-over-year improvement of 10.6%. 

The consensus estimate for 2026 earnings per share and revenues indicates an increase of 8.2% and 2.8%, respectively, from the corresponding 2025 estimates. 

SLF’s Favorable Return on Capital

SLF’s return on equity (ROE) for the trailing 12 months is 16.8%, 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. 

Factors Acting in Favor of SLF

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 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 ROE, 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 10.78, higher than the industry average of 7.75. 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. 

Conclusion

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

This article originally published on Zacks Investment Research (zacks.com).

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