Sun Life Financial Poised For Growth Despite Cost Hurdles

On Aug 19, we issued an updated research report on Sun Life Financial Inc. (TO:SLF) .

Sun Life Financial’s bottom line beat the Zacks Consensus Estimate in the second quarter of 2016. Net income however declined on segmental weaknesses. With respect to surprise, the company surpassed expectations in three of the last four quarters, with an average beat of 3.95%.

Sun Life is aggressively seeking to expand its international business and is focusing on the emerging Asian economies that are expected to provide higher returns and growth than the North American markets. The Zacks Rank #2 (Buy) life insurer is also pursuing prudent acquisitions to ramp up its growth profile. Earlier this month, Sun Life acquired FWD’s Mandatory Provident Fund business in Hong Kong and also entered into an exclusive 15-year distribution agreement. While the transaction expands the company’s wealth business in Hong Kong, it also leverages its global expertise in pensions.

Sun Life is aggressively trying to expand its Global Asset Management Business, which has been witnessing a growing asset base for the past many quarters. Sun Life targets $100 billion in asset under management for Sun Life Investment Management over the next five years.

Riding on its solid capital position, the company also engages in shareholder-friendly moves. Sun Life targets dividend payout between 40% and 50%.

However, high hedging costs remain detrimental to the bottom line. And since expenses are increasing at faster clip than revenues, margin expansion is suffering too.

Sun Life Financial’s well-diversified business profile positions it well for the long term. Riding on operational strength, the company envisions bottom line growth between 8% and 10% and ROE between 12% and 14% over the medium term.

The Zacks Consensus Estimate is currently pegged at $2.76 for 2016 and $3.01 for 2017, translating into a year-over-year decline of 4.34% and increase of 9.07%, respectively.

Other Stocks to Consider

Investors interested in life insurers can look at Health Insurance Innovations, Inc. (NASDAQ:HIIQ) , Genworth Financial, Inc. (NYSE:GNW) and Primerica, Inc. (NYSE:PRI) . While Health Insurance Innovations sports a Zacks Rank #1 (Strong Buy), Genworth Financial and Primerica carry a Zacks Rank #2.