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Manulife Financial Corporation: Underpriced despite Positive Developments
Stock Analysis & Ideas

Manulife Financial Corporation: Underpriced despite Positive Developments

Toronto-based Manulife Financial Corporation (MFC) is a global financial services group that supports individuals, corporations, and institutions in navigating their financials through its wealth, asset management, and insurance businesses.

The company also offers annuity products and services. It operates as Manulife across its offices in Canada, Asia, and Europe, and mainly as John Hancock in the United States. Manulife has around 120,000 agents and a multi-channel distribution network that serves over 30 million customers.

Shares of Manulife have struggled to breach the $22 threshold for more than two decades. However, the company has been making solid developments, improving its financials, and actively growing its dividend. Combined with my view that Manulife shares are attractively priced, I am bullish on the stock.

Recent Developments

Manulife wrapped up its Fiscal 2021 on a great note. In its Q4 results, the company reported core earnings of $6.5 billion, an increase of 26% compared to last year. Earnings growth was powered by Manulife expanding its operations in Asia.

Particularly, the company finalized the acquisition of Aviva Vietnam and commenced a 16-year bancassurance partnership with VietinBank, one of Vietnam’s most extensive financial institutions. This should enable Manulife to offer its customer base a full suite of insurance, wealth, and retirement solutions.

Core EPS (excluding any extraordinary investment gains) for the quarter came in at $0.66, a 13.5% increase year-over-year. The exchange rate between CAD and USD remained rather stable compared to fiscal 2020, hence not impacting the underlying financials notably.

Dividend & Valuation

Manulife has increased its dividend per share every year since 2014 in its local TSX (Toronto Stock Exchange) listing. U.S.-based investors have been somewhat affected by currency effects but have more or less enjoyed similar dividend growth.

The company’s latest increase was by an impressive 17.9%. That said, I would expect future increases to be more humble and converge towards their five-year average of around 10%. With shares already yielding close to 5%, low double-digit DPS increases should be more than adequate to please investors, in my view.

Analysts forecast EPS of around $2.79 for fiscal 2022, implying a payout ratio of around 37%, which should indicate that the company has plenty of room for meaningful dividend hikes ahead.

Based on this estimate, the stock is also trading with a forward P/E close to 7.6, which I find rather humble for the financial services behemoth. It’s one of the softest multiples the company has attracted in decades.

From another point of view, Manulife shares are currently trading at 0.96 times their book value. Buying financial holding companies, including insurers below their book value, is generally considered a wise option, and I would say that this is especially the case with a quality player in the space like Manulife.

Wall Street’s Take

Turning to Wall Street, Manulife Financial has a Moderate Buy consensus rating, based on four Buys and five Holds assigned in the past three months.

At $25.12, the average Manulife Financial stock projections imply 18.7% upside potential.

Conclusion

Manulife Financial has probably disappointed some investors over the years. That said, the company’s underlying financials remain very strong, and positive developments have lately supported noteworthy growth.

Manulife’s latest results were solid, and the company has been actively growing the dividend, with DPS growth even accelerating lately. Combined with the fact that shares are trading below book value, and the yield hovering at substantial levels, I am bullish on the stock.

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