Sun Life Financial (TSE: SLF) (NYSE: SLF), a Canadian financial services company and one of the world’s largest insurers, has had a tough time this year in the market but has still slightly outperformed the S&P 500 (SPX). With a ‘Perfect 10’ Smart Score rating on TipRanks, it’s likely that it can continue outperforming, at least according to the metric. Let’s take a look at Sun Life’s fundamentals to determine whether it is worth considering.
Consistent Per-Share Growth and Value Creation
Sun Life has been around since 1871, and it wouldn’t have lasted this long if it wasn’t profitable. In the past 10 years, the company has seen its earnings per share (EPS) grow at a steady pace – excluding a large increase in EPS in 2021 that is now normalizing. From Fiscal 2012 to Fiscal 2019, the company’s EPS grew almost every year, going from C$2.27 to C$4.41. 2020 saw a small decline due to COVID-19, whereas 2021 saw EPS reach C$6.68.
Now, on a trailing-12-months basis, its EPS is at C$6.36 and is expected to come in at around C$6.00 for the full year before continuing its uptrend.
The company’s book value per share has had a much smoother ride, rising continuously every year for at least the past 10 years. It has risen from C$23.52 in 2012 to C$43.57 as of its most recent quarter. Therefore, it’s evident that the company has created value for its shareholders over the years, making it worth looking into.
Another way to measure its value-creating capabilities is by looking at its return on equity, which has been 12.1% on average in the past five years. Since SLF’s cost of capital is only 7.8%, the positive spread between the two figures (12.1% – 7.8% = 4.3%) means that SLF is a value creator.
Dividends and Book Value Growth Can Generate Strong Returns
Sun Life currently has a forward dividend yield of 4.74%. It also has five and seven-year dividend CAGRs (compound annual growth rates) of 9.5% and 9%, respectively. With a payout ratio of about 41% and solid long-term earnings growth, the company can likely sustain high-single-digit dividend increases for the next few years. This, combined with its five-year book-value-per-share CAGR of 6.1% (if it can keep up a similar rate in the medium term), can provide investors with returns north of 10% per year.
This also assumes that the company can maintain its 1.3x price/book ratio, which is a reasonable assumption since its five-year average stands at 1.5x. However, one thing to note is that due to a potential upcoming recession, the company may experience a slowdown for the next year or two, which could affect its total-return potential.
Nonetheless, Sun Life can still boost its growth through acquisitions, such as its DentaQuest acquisition, which was discussed in more detail here.
Is Sun Life a Good Stock to Buy, According to Analysts?
Analysts are cautiously optimistic about Sun Life Financial. SLF stock earns a Moderate Buy consensus rating based on four Buys and four Hold ratings assigned in the past three months. The average SLF stock forecast of C$70.24 implies 20.8% upside potential.
Conclusion: Sun Life Financial Stock is Worth Considering
Sun Life Financial looks like a solid stock that has upside potential based on its dividend and book-value-per-share growth potential. Analysts even assign it 20.8% upside potential, which is similar to the upside that it would experience if it returned to its five-year average price/book ratio of 1.5x (16% upside potential). Along with its ‘Perfect 10’ Smart Score rating and long history that has survived many downturns, SLF stock is definitely worth considering.