Insurance giant likely has put the worst behind it

Investment Analyst Murray Leith likes the way the new executive team at Manulife Financial Corp. (TSX─MFC) has turned things around. For starters, he says, they’ve used hedging to take a big bite out of stock market risks, as well as those associated with interest rates.

Moreover, the new team has both re-priced and repositioned Manulife’s products for better profitability. In addition, Mr. Leith notes, the financial services giant has discontinued high risk products and business lines, focusing instead on businesses that have the best chance for return and growth. Small wonder, he continues to recommend Manulife as a “buy”— one with a 12-month price target of $26 a share. Mr. Leith, Vice President and Director, Investment Research, at Vancouver-headquartered Odlum Brown writes:

Manulife has had notable success growing its business in Asia —so much so that insurance sales there now account for more than half the company’s total sales of insurance products. True, because of the upfront costs of growing its Asian business, Manulife’s insurance profits in Asia have grown only slowly.

But we’re optimistic that profits will soon pick up speed, generating increased investor interest, as well as a higher share price. Because Manulife’s earnings remain very sensitive to changes in the stock market and interest rates, its shares remain depressed.

Moreover, over the short term, the company’s earnings are expected to be both volatile and somewhat unpredictable. But we firmly believe Manulife has put the worst behind it.

Admittedly, before the market meltdown of 2008, the company’s former execs took excessive risks, selling products that were both poorly designed and poorly priced. Those mistakes helped undermine Manulife’s financial performance, as did the unexpected downdraft in interest rates.

But if we’re right about the recovery remaining on track — especially in the U.S. — it’s a good bet the company’s shares will trade meaningfully higher over time.

What Manulife does

Headquartered in Toronto, Manulife is the biggest of Canada’s three major life insurers. Besides financial protection and wealth management products, the company sells services to individual and group customers in Canada, the U.S. and Asia. In both Canada and Asia, the company mainly does business under the Manulife Financial brand; in the U.S., under the John Hancock label.


Investor’s Digest of Canada, MPL Communications Inc.
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