When it comes to Canadian insurance heavyweights, Manulife Financial (TSX: MFC) and Sun Life Financial (TSX: SLF) often find themselves side by side in investors’ portfolios. Both have storied histories and global operations, but recent performances and future prospects offer some contrasts worth noting. So, when it comes down to it, which is the better buy?
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Into earnings
Manulife recently reported its full-year and fourth-quarter 2024 results, showcasing a commendable performance. The Canadian stock achieved core earnings of $7.2 billion for the year, marking an 8% increase from the previous year. In the fourth quarter alone, core earnings reached $1.9 billion, up 6% from the same period in 2023. Net income attributed to shareholders stood at $5.4 billion for 2024, reflecting a $0.3 billion uptick from the prior year.
Sun Life’s recent earnings painted a more challenging picture. The insurer’s shares dipped by approximately 9% following a quarterly profit that fell short of analysts’ expectations. The Canadian stock’s U.S. segment, which contributes about 20% to its earnings, faced higher claims related to severe medical conditions, particularly in its medical stop-loss insurance. This surge in claims has been partly attributed to delayed medical check-ups during the pandemic, leading to more severe health issues. In response, Sun Life plans to implement a 2% increase in insurance prices to mitigate these challenges.
The numbers
Looking at stock performance, as of writing, Manulife’s shares were trading at $42.27, reflecting a 1.05% increase. The Canadian stock boasts a market capitalization of $72.84 billion and a trailing price-to-earnings (P/E) ratio of 14.88. Its forward annual dividend yield stands at 4.16%, with a payout ratio of 56.34%.
In contrast, Sun Life’s shares were trading at $79.68, experiencing a slight decrease of 0.25%. The insurer has a market cap of $45.76 billion and a trailing P/E ratio of 15.19. Its forward annual dividend yield is slightly higher at 4.21%, with a payout ratio of 61.60%.
Growing value
Both companies have unique strengths. Manulife’s significant presence in Asia has been a growth driver, with the region contributing substantially to its earnings. The Canadian stock’s diversified portfolio across 12 Asian markets and over 100 bank partnerships underscores its commitment to this high-growth region.
Sun Life, meanwhile, has been focusing on expanding its U.S. operations, notably through the acquisition of DentaQuest in 2022. While the dental segment faced challenges in the latest quarter, the Canadian stock remains optimistic about achieving its earnings target of $100 million in this segment by 2025.
In terms of valuation, Manulife tends to trade at lower multiples compared to Sun Life. This could present an attractive entry point for value-focused investors. However, it’s essential to consider the growth trajectories and challenges each company faces. Analyst sentiments also provide some insights. For Sun Life, the average 12-month stock price forecast is $87, with a high estimate of $94 and a low of $75. This suggests a potential upside of approximately 9.89% based on current prices.
Bottom line
Together, both Manulife and Sun Life are stalwarts in the insurance industry, each with its own set of opportunities and challenges. Investors would do well to consider their individual financial goals and risk tolerance when deciding between the two. While Manulife’s strong Asian presence offers growth potential, Sun Life’s strategic moves in the U.S. market could yield long-term benefits despite short-term hurdles. As always, a diversified approach, keeping an eye on global economic indicators, would be prudent when considering investments in these Canadian stocks.
