Manulife Financial Corp. (TSX:MFC)(NYSE:MFC), one of the world’s largest financial services companies, announced its second-quarter earnings results after the market closed Wednesday, and its stock has responded by falling over 2% in early trading. Let’s take a closer look at the results and the fundamentals of its stock to determine if we should use this weakness as a long-term buying opportunity.
Breaking down the Q2 performance
Here’s a quick breakdown of the six of most notable financial statistics from Manulife’s three-month period ended on June 30, 2017, compared with the same period in 2016:
| Metric | Q2 2017 | Q2 2016 | Change |
| Core earnings | $1,174 million | $883 million | 33% |
| Diluted core earnings per share (EPS) | $0.57 | $0.40 | 42.5% |
| Core return on equity (ROE) | 11.5% | 8.4% | 310 basis points |
| Assets under management and administration | $1,012 billion | $934 million | 8.4% |
| Capital | $52.0 billion | $50.9 billion | 2.2% |
| Book value per share | $20.01 | $19.49 | 2.7% |
Should you use the weakness in its stock to buy?
It was a great quarter overall for Manulife, and it capped off a very strong first half of the year for the company, in which its core earnings increased 30.9% to $2,275 million, its fully diluted core EPS increased 32.1% to $1.11, and its core ROE improved by 240 basis points to 11.3%. It’s also worth noting that its core EPS in the second quarter surpassed the consensus estimate of analysts polled by Thomson Reuters, which called for $0.55.
With all of this being said, I think the decline in Manulife’s stock represents an attractive entry point for long-term investors for two fundamental reasons.
First, it’s wildly undervalued. Manulife’s stock now trades at just 11.3 times fiscal 2017’s estimated core EPS of $2.21 and only 10.3 times fiscal 2018’s estimated core EPS of $2.42, both of which are very inexpensive compared with its five-year average price-to-earnings multiple of 16.8. These multiples are also inexpensive given its current earnings-growth rate and its estimated 11.7% long-term growth rate.
Second, it has a fantastic dividend. Manulife currently pays a quarterly dividend of $0.205 per share, equal to $0.82 per share annually, which gives it a generous 3.3% yield. The company has also raised its annual dividend payment for three consecutive years, and its 10.8% hike in February has it positioned for 2017 to mark the fourth consecutive year with an increase, which makes it both a high-yield and dividend-growth play today.
With all of the information provided above in mind, I think all Foolish investors should strongly consider using the post-earnings weakness in Manulife’s stock to begin scaling in to long-term positions.
