Success was starting to look like a tradition at Canadian financial company Sun Life Financial (TSE:SLF) (NYSE:SLF). For almost three straight years, it posted beats against core profit estimates. But I say “almost” here for a reason, as the first quarter’s results disappointed, and shares are down over 4.5% in Friday morning trading as a result.
For the first time in the last 12 quarters, three full years, Sun Life posted numbers less than what analysts expected. Sun Life put up C$875 million, roughly C$1.50 per share. That not only faltered against analyst projections, but it also came up short against the first quarter of 2023, where it came in at C$895 million, about C$1.52 per share.
Several factors weighed on the stock that quarter; it sold off its United Kingdom operations, faced higher morbidity claims, saw a drop in United States dental services, and lost ground in most of its operating sectors. Any one of those might have been survivable without disappointing analysts. All of them together proved a perfect storm that stopped a three-year hot streak.
A Rising Morbidity Tide
For those not familiar with insurance terms, “morbidity” is the rate at which people get sick or injured in a particular area. It’s often used as a means to price insurance, so if a morbidity rate is rising in an area, that likely means that costs are rising, too. Therefore, premium rates will rise for customers.
That’s a bad play in a market where the price of everything is going up, and if people have to choose between life insurance and eating, they’re probably not going to pick the life insurance. Worse, Sun Life also faced higher payout rates; long-term disability claims were on the rise even before the pandemic, and COVID-19 did not make anything better on that front.
Is Sun Life a Good Stock to Buy?
Turning to Wall Street, analysts have a Strong Buy consensus rating on Sun Life stock based on seven Buys and two Holds assigned in the past three months, as indicated by the graphic below. After a 13.9% rally in its share price over the past year, the average Sun Life price target of C$77.22 per share implies 10.02% upside potential. However, it’s worth noting that estimates will likely change following today’s earnings report.
