We are reiterating our Neutral recommendation on
Sun Life Financial Inc.
) following the first quarter earnings release. Sun Life's
Financial Inc. announced first-quarter 2013 net operating
earnings $444 million (C$448 million) , improving 2.5% over first
quarter 2012. Sun Life retains a Zacks Rank #3 (Hold).
Sun Life is a leading Canadian life insurance company, with an
active presence in the U.S. Over the long term we believe the
company will be able to generate superior returns for its
investors given a proactive approach to managing and mitigating
Sun Life is seeking to grow internationally. It is
specifically focusing on the emerging economies of Asia, which is
expected to provide higher return and growth compared to the
North American markets.
The company is also making business mix changes in its U.S.
segment to reduce the equity market exposure and limit its
interest rate exposure.
At the same time, Sun Life is aggressively seeking to grow its
Global Asset Management Business, which has been witnessing
growing asset base for the past many quarters. This business
provides higher ROE, lower capital, and lower volatility. It has
the potential to provide earnings upside.
Along with doing away with high equity/interest rate risk
products, Sun Life has implemented hedging to reduce earnings and
capital sensitivity to interest rates and equity markets. The
company stands better than its peers in terms of managing hedging
Nevertheless, these positives are dwarfed by the historically
low interest rate environment that is expected to continue to
have a significant negative impact on the company's operations.
The company's leverage ratio has also increased due to
requirement for additional regulatory capital.
Following the first quarter results, the Zacks Consensus
estimate for 2013 moved up by 2.9% to $2.67 as 2 of 3 estimates
moved north in the last 30 days. For 2014, 2 of 3 estimates were
raised pushing the Zacks Consensus estimate by 1.5% to $2.75 over
the same time frame.
Other life insurers
StanCorp Financial group Inc.
Protective Life Inc.
) both carrying a Zacks Rank #1 (Strong Buy) and
China Life Insurance Co.
), carrying Zacks Rank #2 (Buy) are worth considering
CHINA LIFE INS (LFC): Free Stock Analysis
PROTECTIVE LIFE (PL): Free Stock Analysis
STANCORP FNL CP (SFG): Free Stock Analysis
SUN LIFE FINL (SLF): Free Stock Analysis
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