We are reiterating our Neutral recommendation on
Manulife Financial Corp.
), following the second quarter earnings release. During the last
reported quarter, the company's earnings grew year-over-year on
the back of improvement in core earnings in Canada and lower
hedging costs, partly offset by a decline in the U.S. division's
On Aug 8, Manulife reported second-quarter 2013 earnings of
$623 million (C$609 million) up 3.0% year over year. Net income
came in at approximately $265 million (C$259 million), compared
with a net loss of $ 284 million (C$281 million) in the last year
Manulife is one of the dominant life insurers within its
domestic Canadian market and possesses rapidly growing operations
in the U.S. and several Asian countries. It has a diverse global
presence with 75% of its earnings coming from outside Canada.
It has been doing business in the Asian market for over a
century, which gives it a competitive advantage.
Moreover, changing demographics have fueled demand for
insurance and wealth management products in these regions and the
company will likely benefit from this due to its longstanding
Manulife is aligning its product offering to concentrate more
on higher margin, low risk products as against higher
risk-capital intensive products. Currently, 88% of its total
premiums and deposits are in these targeted (lower-risk)
products. Although this will result in subdued growth relative to
its historical pace, we believe that it will deliver more
sustainable growth targets and improve product margins as well as
earnings consistency over time.
Manulife's business exposes it to market volatility, though
the company is effectively building its hedging program to
decrease both interest rate and equity market exposure.
Manulife retains a high quality investment portfolio. Its
invested assets are highly diversified by sector and geography
and have limited exposure to the high-risk areas. We continue to
view the company's investment management as a significant
However, Manulife's exposure to equity and interest rates risk
may pressure its capital position.
Manulife currently retains a Zacks Rank #3 (Hold).
Lincoln National Corp.
Symetra Financial Corp.
StanCorp Financial Group Inc.
) with Zacks Rank #2 (Buy) are worth investing in.
LINCOLN NATL-IN (LNC): Free Stock Analysis
MANULIFE FINL (MFC): Free Stock Analysis
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SYMETRA FINL CP (SYA): Free Stock Analysis
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