Sun Life Shares Burning Hot Post-Election, Up 15%

Shares of Sun Life Financial Inc SLF have gained 15 percent since the U.S. presidential election and are currently trading above the peer median. The stock now appears “fully valued,” Argus’s Jacob Kilstein said in a report. He downgraded the rating on Sun Life from Buy to Hold and suspended the price target.

The company’s shares have outperformed the market over the past quarter, gaining 20 percent versus a 5 percent gain for the S&P 500. Shares have outperformed over the past year, rising 26 percent versus a 12 percent gain for the index.

Ongoing Concerns

“We are concerned about weakness in the core Canadian business, lower margins, and the negative impact of a strengthening Canadian dollar. The company has also suspended share repurchases as it uses capital for organic growth and acquisitions,” analyst Kilstein commented.

Although Sun Life has a strong balance sheet and a dividend yield higher than the peer average, its margins have been under pressure, while mortality and morbidity rates have been “a consistent challenge.”

Kilstein added that the results from Sun Life’s investment holdings have been volatile and the company’s overseas results have been adversely impacted by Canadian dollar appreciation, which should continue in 2017.

Although the Asian and U.S. businesses are improving, life insurance sales in the core Canadian business has been declining. “While we previously believed that share price weakness could lead to increased stock buybacks, management has said it would not be repurchasing shares,” the analyst wrote.