Thursday, August 03, 2006

Analysts' Views on Manulife Financial

The Globe and Mail, Allan Robinson, 3 August 2006

Manulife Financial Corp., the second-largest company on the S&P/TSX composite index, could see its growth rate slow when its second-quarter results are released today, but analysts say that could present a buying opportunity.

The results of Toronto-based Manulife and other life insurance companies are expected to be adversely affected by the drop during the quarter in North American stock markets, currency moves and a general slowdown in the economy, analysts say.

The acquisition two years ago of John Hancock Financial Services Inc. makes Manulife more vulnerable to weakness in the U.S. dollar by reducing the reported profit in Canadian dollars, Genuity Capital said.

Stock market weakness, in turn, can lower the return on investments, fee income from managing assets and the sale of financial products, Desjardin Securities said.

Manulife is forecast to have earned 60 cents a share during the second quarter, compared with 52 cents a year earlier, according to Thomson Financial. That 16-per-cent growth rate would be below the 21-per-cent to 25-per-cent pace of the previous three quarters, Genuity Capital noted.

Even if Manulife meets expectations, the results might not be strong enough to sustain the premium price at which the shares trade relative to its large-capitalization financial services peers, said Mario Mendonca, a Genuity analyst.

"With this in mind, investors should look at near-term weakness as a better entry point on the stock," he said.

The shares of Manulife closed yesterday at $35.65 on the Toronto Stock Exchange.

The shares traded at a 52-week low of $29.32 last Aug. 29. The company is forecast to earn $2.45 a share in 2006 and $2.80 a share in 2007, according to Thomson First Call.

Mr. Mendonca has a "buy" rating on Manulife, which comprises 4.2 per cent of the S&P/TSX. His 12-month share price target is $39.50.

Jamie Keating, an analyst with RBC Dominion Securities Inc., in a report this week rated Manulife as a "top pick" with a 12-month share price target of $43. Desjardins Securities analyst Michael Goldberg also has it as a "top pick" with a share price target of $42.

Manulife's results during the past three quarters have been helped by a strong economy, share repurchases, a rising stock market and cost cutting following its acquisition of John Hancock, Genuity said.

During the second quarter, Manulife Financial repurchased 15.2 million shares at $36.56 a share, which reduces the average fully diluted shares outstanding by between 1 per cent and 2 per cent, Genuity said.

Manulife's domestic results could also be helped by the increase in Canadian and U.S. bond yields during the second quarter, which reduces the present value of its potential liabilities, Mr. Goldberg said.

Manulife is a "top pick" because of its strong capital and its growth prospects, he said.