Manulife Financial Corp. (TSX:MFC)(NYSE:MFC), one of the largest financial services companies in the world and the eighth largest life insurer by market capitalization, announced fourth-quarter earnings on the morning of February 12, and its stock has responded by falling over 1% in the days since. Let’s break down the quarterly results to determine if we should consider using this weakness to establish long-term positions today.
Breaking down the fourth-quarter results
In the fourth quarter of fiscal 2014, Manulife’s net income decreased 50.7% to $640 million, or $0.32 per share, compared to net income of $1.3 billion, or $0.57 per share, in the year-ago period. However, excluding certain items, the company’s core earnings increased 4.1% to $713 million and its diluted core earnings per share increased 2.9% to $0.36, but unfortunately, this still fell short of analysts’ expectations of $0.40 per share.
For the quarter, Manulife’s revenue before realized and unrealized gains increased 1.8% to $9.83 billion, and including these gains, total revenues increased an immense 127.8% to $16.01 billion. These strong results were driven by net premium income increasing 6.6% to $4.85 billion and investment income increasing 1.9% to $2.68 billion compared to the year ago period.
Also, Manulife reported a record $691.13 billion in assets under management at the end of the fourth quarter, an increase of 15.4% from the year ago period, and this marked the 25th consecutive quarter in which it achieved record assets under management.
Here’s a quick breakdown of 10 other notable statistics and updates from the report compared to the year-ago period:
- Sales of insurance products increased 23.2% to $760 million.
- Sales of wealth products increased 12.4% to $13.76 billion.
- Premiums and deposits for insurance products increased 7.8% to $6.65 billion.
- Premiums and deposits for wealth products increased 22.8% to $18.86 billion.
- Total capital increased 18.2% to $39.6 billion.
- Core return on equity contracted 140 basis points to 9.0%.
- Cash provided by operating activities increased 76.4% to $3.19 billion.
- Book value per common share increased 17.5% to $16.42.
- Market capitalization increased 6.7% to $41.3 billion.
- The company ended the quarter with $20.44 billion in cash and cash equivalents, an increase of 17.4% from the third quarter and 58.6% from the year-ago period.
Manulife announced that it would be maintaining its quarterly dividend of $0.155 per common share, and the next payment will come on March 19 to shareholders of record at the close of business on February 25.
Should you buy Manulife on the weakness?
Manulife Financial Corp. is the eighth largest global life insurance company. Increased demand for its products and services led it to a solid fourth-quarter performance, but the results came in weaker than analysts had anticipated, so its stock has reacted by falling over 1% in the days since the release.
Although I think the post-earnings weakness in Manulife’s stock is warranted, I also think it has led to a long-term buying opportunity. I think this is because the stock trades at very inexpensive valuations, including just 11.4 times fiscal 2015’s estimated earnings per share of $1.89, only 10.2 times fiscal 2016’s estimated earnings per share of $2.12, and a mere 1.3 times its book value per share of $16.42.
In addition, the company pays an annual dividend of $0.62 per share, which gives its stock an attractive 2.9% yield and makes it both a value and dividend investment play today.
I think Manulife Financial Corp.’s shares may trade erratically over the next couple of weeks, but I think they will head much higher over the next several years. Foolish investors should consider beginning to scale into long-term positions today.