Shares of Sun Life Financial Inc. SLF closed at $57.44 on Monday, near its 52-week high of $58.51. This proximity underscores investor confidence. It has the ingredients for further price appreciation. The stock is trading above the 50-day and 200-day simple moving average (SMA) of $54.61 and $52.24, respectively, indicating solid upward momentum. SMA is a widely used technical analysis tool to predict future price trends by analyzing historical price data.

Earnings of the life insurer grew 5.4% in the last five years, better than the industry average of 4.6%. SLF has a solid surprise history. It has a solid track record of beating earnings estimates in three of the last four quarters while missing in one, the average being 1.76%.

Shares of SLF have gained 10.8% year to date compared with the industry’s growth of 24.8% and the Zacks S&P 500 composite’s return of 22%.

YTD Performance

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Mixed Analyst Sentiment for SLF

Three of the six analysts covering the stock have raised estimates for 2024, and four analysts have raised the same for 2025 over the past 60 days. Two analysts have lowered the estimates for both 2024 and one has lowered the same for 2025.

The Zacks Consensus Estimate for 2024 and 2025 earnings has moved up 1.2% and 1.5% in the past 60 days, reflecting analysts’ optimism.

The Zacks Consensus Estimate for 2024 implies a 3.6% year-over-year increase.

Sun Life’s Favorable Return on Capital

Return on equity in the trailing 12 months was 17.4%, better than the industry average of 15.5%. This highlights the company’s efficiency in utilizing shareholders’ funds.

Also, the return on invested capital (ROIC) has been increasing over the last few quarters as the company raised its capital investment over the same time frame, reflecting SLF’s efficiency in utilizing funds to generate income. ROIC in the trailing 12 months was 0.7%, better than the industry average of 0.6%.

Factors Benefiting SLF

Sun Life’s focus on the emerging economies of Asia that are expected to provide higher returns and the North American markets bodes well for long-term growth. SLF has a strong presence in China, the Philippines, India, Hong Kong and Indonesia and also forayed into Malaysia and Vietnam. Contribution from Asia business to Sun Life’s earnings has increased to 21% over the last few years.

This third-largest insurer in Canada looks to be 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 is thus shifting its growth focus toward products that block lower capital and offer more predictable earnings.

Sun Life Investment Management makes investments in private fixed-income mortgages and real estate. It invests in pension plans and other institutional investors. These are indicative of SLF’s efforts to strengthen Asset Management, which provides a higher return on equity, requires lower capital, sees lesser volatility and has the potential for an earnings upside.

Operational efficiency has been aiding Sun Life in building a strong capital position. The life insurer’s capital outlay includes a 40-50% dividend payout over the medium term.

SLF’s Expensive Valuation

The stock is overvalued compared to its industry. It is currently trading at a price-to-earnings multiple of 10.9, higher than the industry average of 8.7.

Shares of other insurers like Reinsurance Group of America, Incorporated RGA, Primerica, Inc. PRI and Manulife Financial Corp MFC are also trading at a multiple higher than the industry average.

Conclusion

Sun Life's favorable growth estimates, focus on Asia operations, financial stability and favorable return on capital make it an attractive stock to retain for current investors.

Sun Life also has a VGM Score of B. Stocks with a favorable VGM Score are those with the most attractive value, best growth and most promising momentum compared with peers. Coupled with growing asset management businesses and the scale-up and integration of U.S. operations, the time appears right for potential investors to bet on this Zacks Rank #2 (Buy) insurer. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Manulife Financial Corp (MFC) : Free Stock Analysis Report

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