MENU

Why Manulife Financial Corp. Is Down Over 2%

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.

5 stocks we like better than Manulife Financial Corp.

When investing Guru Iain Butler and his shrewd team of analysts have a stock tip, it can pay to listen. After all, the newsletter they began just three years ago, Stock Advisor Canada, is already beating the market by 9.6%. And their Canadian picks have literally doubled the market.

Iain and his team just revealed what they believe are the five best stocks for investors to buy right now… and [stock] wasn’t one of them! That’s right – they think these five stocks are even better buys.

*returns as of 5/30/17

Fool contributor Joseph Solitro has no position in any stocks mentioned.

I consent to receiving information from The Motley Fool via email, direct mail, and occasional special offer phone calls. I understand I can unsubscribe from these updates at any time. Please read the Privacy Statement and Terms of Service for more information.