Canadian Insurance Stocks

Sun Life Financial Inc Valuation – August 2018 $TSE-SLF

Company Profile (excerpt from Reuters): Sun Life Financial Inc. (Sun Life Financial), incorporated on August 5, 1999, is the holding company of Sun Life Assurance Company of Canada (Sun Life Assurance). The Company is a financial services company providing a range of insurance, wealth and asset management solutions to individuals and corporate Clients. Sun Life Financial has operations in a range of markets around the world, including Canada, the United States, the United Kingdom, Ireland, Hong Kong, the Philippines, Japan, Indonesia, India, China, Australia, Singapore, Vietnam, Malaysia and Bermuda. The Company operates through five segments: Sun Life Financial Canada (SLF Canada), SLF U.S., Sun Life Financial Asset Management (SLF Asset Management), SLF Asia and Corporate.

SLF Chart

SLF data by YCharts

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of TSE-SLF – August 2018

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass all 6 of the following tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $33,850,590,000 Pass
2. Earnings Stability Positive EPS for 10 years prior Fail
3. Dividend Record Dividend Payments for 10 years prior Pass
4. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 356.13% Pass
5. Moderate PEmg Ratio PEmg < 20 13.35 Pass
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.41 Pass
Enterprising Investor; must pass all 3 of the following tests, or be suitable for the Defensive Investor.
1. Earnings Stability Positive EPS for 5 years prior Pass
2. Dividend Record Currently Pays Dividend Pass
3. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $3.98
MG Growth Estimate 15.00%
MG Value $153.38
Opinion Undervalued
MG Grade A-
MG Value based on 3% Growth $57.77
MG Value based on 0% Growth $33.86
Market Implied Growth Rate 2.43%
Current Price $53.20
% of Intrinsic Value 34.68%

Sun Life Financial Inc is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability over the last ten years. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $1.96 in 2014 to an estimated $3.98 for 2018. This level of demonstrated earnings growth outpaces the market’s implied estimate of 2.43% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into Sun Life Financial Inc revealed the company was trading below its Graham Number of $62.47. The company pays a dividend of $1.75 per share, for a yield of 3.3%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 13.35, which was below the industry average of 36.08, which by some methods of valuation makes it one of the most undervalued stocks in its industry.

Sun Life Financial Inc fares extremely well in the ModernGraham grading system, scoring an A-.

Stage 3: Information for Further Research

Graham Number $62.47
PEmg 13.35
PB Ratio 1.41
Dividend Yield 3.28%
TTM Dividend $1.75
Number of Consecutive Years of Dividend Growth 3

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Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2018
Long-Term Debt & Capital Lease Obligation $4,336,000,000
Total Assets $269,720,000,000
Intangible Assets $6,968,000,000
Total Liabilities $246,441,000,000
Shares Outstanding (Diluted Average) 615,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $4.75
Dec2017 $3.49
Dec2016 $4.03
Dec2015 $3.55
Dec2014 $2.86
Dec2013 $1.55
Dec2012 $2.59
Dec2011 -$0.64
Dec2010 $2.39
Dec2009 $0.94
Dec2008 $1.37
Dec2007 $3.85
Dec2006 $3.58
Dec2005 $3.12
Dec2004 $2.79
Dec2003 $2.15
Dec2002 $0.69
Dec2001 $1.87
Dec2000 $2.09

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $3.98
Dec2017 $3.43
Dec2016 $3.24
Dec2015 $2.56
Dec2014 $1.96
Dec2013 $1.46
Dec2012 $1.39
Dec2011 $1.05
Dec2010 $2.07
Dec2009 $2.13
Dec2008 $2.80
Dec2007 $3.38
Dec2006 $2.92
Dec2005 $2.43
Dec2004 $2.03
Dec2003 $1.55
Dec2002 $1.15

Recommended Reading:

Other ModernGraham posts about the company

4 Best Stocks for Value Investors This Week – 1/28/17
Sun Life Financial Inc Valuation – Initial Coverage $TSE:SLF

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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