The Motley Fool

Why Sun Life Financial Inc. Is Rallying Over 3%

Sun Life Financial Inc. (TSX:SLF)(NYSE:SLF), one of the world’s largest insurance companies, released its fiscal 2017 fourth-quarter and full-year earnings results after the market closed yesterday, and its stock has responded by rallying over 3% at the open of trading today. Let’s break down the earnings results and the fundamentals of its stock to determine if we should be long-term buyers.

Breaking it all down

Here’s a breakdown of eight of the most notable statistics from Sun Life’s three-month period ended December 31, 2017, compared with the same period in 2016:

Metric Q4 2017 Q4 2016 Change
Insurance sales $1,106 million $1,071 million 3.3%
Wealth sales $35,300 million $37,250 million (5.2%)
Adjusted premiums and deposits $43,420 million $43,117 million 0.7%
Total revenue $8,648 million $2,366 million 265.5%
Underlying net income $641 million $560 million 14.5%
Underlying earnings per share (EPS) $1.05 $0.91 15.4%
Underlying return on equity (ROE) 12.7% 11.4% 130-basis-point improvement
Book value per common share $32.86 $32.10 2.4%

And here’s a breakdown of 10 notable statistics from its 12-month period ended December 31, 2017, compared with the same period in 2016:

Metric Fiscal 2017 Fiscal 2016 Change
Insurance sales $3,042 million $2,758 million 10.3%
Wealth sales $145,314 million $138,319 million 5.1%
Adjusted premiums and deposits $170,534 million $161,217 million 5.8%
Total revenue $29,334 billion $28,573 billion 2.7%
Underlying net income $2,546 million $2,335 million 9.0%
Underlying EPS $4.15 $3.80 9.2%
Underlying ROE  12.7% 12.2% 50-basis-point improvement
Total assets under management $974,785 million $903,275 million 7.9%
Book value per common share $32.86 $32.10 2.4%
Dividends per common share $1.745 $1.62 7.7%

What should you do with Sun Life’s stock today?

It was a great quarter overall for Sun Life, and it capped off a fantastic year for the company, so I think the +3% pop in its stock is warranted; furthermore, I think the stock represents a very attractive long-term investment opportunity today for two fundamental reasons in particular.

First, it’s still undervalued. Sun Life’s stock currently trades at just 12.9 times fiscal 2017’s underlying EPS of $4.15 and only 11.7 times the consensus estimate of $4.57 for fiscal 2018, both of which are very inexpensive given its current earnings-growth rate and its estimated 8.2% long-term earnings-growth rate; these multiples are also inexpensive compared with its five-year average multiple of 15.4.

Second, it has a high dividend with a track record of growth. Sun Life currently pays a quarterly dividend of $0.455 per share, equating to $1.82 per share annually, which gives it a rich 3.4% yield. Investors must also note that the company’s 4.6% dividend hike in November has it on track for 2018 to mark the fourth straight year in which it has raised its annual dividend payment, and I think its strong growth of underlying net income will allow this streak to continue for many years to come.

With all of the information provided above in mind, I think all Foolish investors should strongly consider beginning to scale in to positions in Sun Life over the next couple of trading sessions.

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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

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

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