February 8, 2024
Sun Life Financial Inc.
We see good EPS growth and high ROE for 2024
Our view: SLF's Q4/23 result was stronger than we expected, primarily in the U.S. and Canada. The U.S. segment did better than we expected despite Medicaid redeterminations. As redeterminations ease and dental sales improve, we think the U.S. could see stronger growth later in 2024. Asia's results were weak versus our estimates, though Hong Kong sales were strong. We think Canada's strength fades as Asia normalizes higher. We continue to see SLF's ROE as the strongest among the group at 18.0% vs the peer average of 15.7% for 2024. We maintain our Outperform.
Key points:
In Q4/23, SLF's underlying EPS was $1.68, higher than our estimate of $1.52 and consensus of $1.58. Results in SLF U.S., Canada, and Asset Management came in stronger than we expected.
“Normalization” might be a theme in 2024... Although Canada results were good, we think experience should normalize (lower), and at the same time, we believe U.S. results can improve as redeterminations ease and dental earnings improve. We think that wealth earnings are “fine” and somewhat dependent on equity markets. Asia results were a little weak relative to our estimates, but even here, we think that stronger growth can occur later in 2024 as negative experience fades. Manjit Singh will transition from CFO to President of SLF Asia, so it may be that we see a strategic “refresh” in Asia by the end of 2024. All in, the diversified nature of SLF's business helps keep solid EPS growth/ROE expectations as some segments will normalize in different directions in 2024.
Following our model updates, our core EPS estimates increase to $6.90 (was $6.73) for 2024 and $7.71 (was $7.55) for 2025. We update our model for more normalized experience gains in Canada, slightly higher Corporate losses, and other tweaks. We now assume slightly lower buybacks. We increase our price target to $77 (was $76) and we maintain our Outperform.
SLF U.S. earnings were up ~37% QoQ and ~10% YoY at $253 million, above our $200 million forecast. Expected investment earnings of $44 million were above our $26 million estimate. Dental sales (in US$) increased ~293% QoQ and ~3% YoY and high utilization rates did not occur at SLF like some of its U.S. peers, which we view as positives. We model ~9% earnings growth in 2024 as we think results can improve as Medicaid redeterminations end.