Improving Earnings Visibility, Strong Capital Fetches Sun Life An Upgrade

Sun Life Financial Inc SLF reported fiscal year 2017 fourth-quarter results showing above-consensus earnings per share.

The Analyst

BMO Capital Markets analyst Tom Mackinnon upgraded Sun Life from Market Perform from Outperform and increased his price target from $56 to $61.

The Thesis

Sun Life Financial is likely to benefit from improving earnings visibility for the U.S., as repricing efforts have taken hold, and Asia, Mackinnon said in a note. In Asia, the analyst expects scale builds to help underlying earnings growth to return to the 15 percent range seen in 2015 and 2016.

The analyst also referred to the company's strong capital position of $2.3 billion in excess capital, and attractive 24 percent debt plus preferreds/total capital ratio.

The above-consensus FQ4 2017 earnings per share was achieved due to better margins at MFS, and improvements in mortality/morbidity, Mackinnon said.

As such, BMO increased its EPS estimates for 2018 and 2019 by 5 cents per share each, reflecting improved mortality/morbidity experience from U.S. group re-pricing efforts and modestly lower strain in Canada.

"We believe SLF offers an attractive total return potential, with the potential for multiple expansion, driven by improving earnings visibility in the U.S., a return to growth in Asia (due to scale and benefits of investment spends), conservative leverage ratio, and strong excess capital position ($2.3B, providing capital deployment optionality), and a solid 3.4% dividend yield," the firm said.

The Price Action

Sun Life Financial shares are up 6 percent over the past year.

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