In a research report released Tuesday titled The Answer to One of Life’s Most Pressing Questions, Scotia analyst Meny Grauman predicted Canadian life insurance companies are likely to report “resilient” fourth-quarter results and continues to forecast “solid” earnings per share growth moving forward.
“Life is full of important questions, but one of the most pressing questions in the financials sector right now is: Can Canadian lifecos outperform banks for the third year in a row? Our answer is yes, although we acknowledge that this would mark the first time we have seen such a streak going back to at least the late 1980s,” he said. “In our defense, most of the prior 30+ years have coincided with an unprecedented credit boom that favoured the banks, while lifecos struggled under the weight of ultra-low rates. The words “this time is different” is always a dangerous phrase to utter in the context of financial markets, but we believe that we are at a unique juncture in time that will continue to see the Canadian banks, as a group, struggle to meet their medium-term objectives due to historically high capital requirements, slowing loan growth, and normalizing credit conditions. Meanwhile, we believe that the Canadian lifecos are well positioned to enjoy the benefits of normalizing (long) yields , and the benefits of over 15 years of de-risking.”
Sun Life Financial Inc. to $76 from $75. Average: $74.42.
“Our second favorite name is SLF as its peer-leading ROE is likely to expand above 18 per cent in 2024, and towards 20 per cent over the next few years,” said Mr. Grauman. “We head into Q4 reporting essentially in-line with consensus for core EPS as we continue to factor in some near-term pressure in the company’s U.S. dental business, but expect that impact to be transitory as per Management guidance. Looking ahead to the year as a whole, we see strong core earnings growth and ROE expansion in-line with the company’s medium-term target of 18 per cent plus helped in part by an active 3-per-cent buyback.”