Gabriel Dechaine of Canaccord Genuity offers insight on his top-rated Canadian-based insurance companies ahead of earnings. For the overall sector, Dechaine notes that âlong bond yields in the U.S. and Canada fell 20 to 35 bps. Equity markets were generally positive, with a rise in Canadian equity and Global equity markets being tempered by flat S&P performance.â Gabriel Dechaine has an 83% overall success rate recommending stocks with a +7.5% average return per rating.
Here are two of Dechaineâs industry highlights:
Sun Life Financial (SLF)
Sun Life Financial will be posting first-quarter results on May 5. Dechaine is forecasting a 10% year-over-year increase in earnings per share but warns that âthe earnings picture likely will be less rosy due to the mixed macro environment.â In the last quarter, SLF reported a $64 million loss, which was a driving factor in missing EPS guidance. In full-year 2014, SLFâs gross sales decreased by 14% and net sales decreased by 95%. SLF told investors it will turn its funds around by launching âFixed Income funds in its Institutional product portfolio.â Dechaine added that SLF is âundertaking a re-pricing of this business and expects roughly half of the book to deliver improved margins by 2016.â On the bright side, earnings from SLFâs market in Asia increased 16% in 2014 and now account for about 10% of total operating profits. Dechaine notes that SLFâs Asia business is âworthy of investor attention.â
Dechaine has a Buy rating on Sun Life Financial with a $44 price target. He has only rated SLF once, earning a +4.3% return on the recommendation.
Manulife Financial Corp (MFC)
In the next earnings report, Dechaine is focusing on âthe impact of low rates on expected profitsâ and âmark-to-market investment losses on MFCâs $2.2 billion oil and gas portfolio.â In addition, Dechaine notes that low oil prices caused MFC to record âinvestment losses of ~$350 million on its $2.2 billion oil and gas portfolioâ in the last quarter. For the current quarter, Dechaine is forecasting a $100 million investment loss in this portfolio. Furthermore, Dechaine provided an update for MFCâs Efficiency and Effectiveness program, noting that it has âachieved $200 million of annual run rate savings, net of reinvestment in the business.â However, Dechaine will be looking to see âhow much of this amount is currently reflected in the companyâs earnings, which will provide an indication of how much is âback end loadedâ to 2016.â
Dechaine has a Buy rating on Manulife Financial Corp with a $44 price target. He has rated the company four times since May 2013, earning 100% success rate recommending the stock with a +11.9% average return per MFC rating.
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