Manulife Financial Corp.'s stock is up 43 per cent in 2024, including a blistering 26-per-cent gain since it released its last quarterly report in early August. Signage is seen on Manulife's office tower in Toronto, Feb. 11, 2020.Cole Burston/The Canadian Press
Investors who have enjoyed Manulife Financial Corp.’s MFC-T impressive rally this year now stand on a key threshold: the final push to a new record high that has been in the works for – yikes – 17 years.
That puts a lot of pressure on the next quarterly earnings report, which will be released Wednesday, for a clear signal that the recent moves are fully justified.
And what moves they are. The stock is up 43 per cent in 2024, including a blistering 26-per-cent gain since Manulife released its last quarterly report in early August.
That’s a better year-to-date gain than Manulife’s Canadian life insurance rivals over the same period, and it has surprised some analysts.
“We did not expect to see Manulife trade at more than $40, but it is now well through that level,” said Paul Holden, an analyst at CIBC Capital Markets, in a note this week when the share price briefly poked above $42.
The stock closed Friday at $41.13, up 1.1 per cent.
That’s not far from its record high of $44.19 in 2007, just before Manulife became ensnared in the financial crisis, which pummelled its share price by nearly 80 per cent by 2009.
It has been a long journey back. Manulife has reassured investors who were rattled after the company slashed its dividend in 2009 with a decade of hikes. The quarterly payout is now 40 cents a share, which is well above its high of 26 cents a share before the cut.
It has revamped parts of its business to make earnings less susceptible to market downturns. It has also streamlined some areas to increase efficiency and profitability.
“We have transformed the company. We’re a radically different company today than we were in 2017,” said Roy Gori, Manulife’s chief executive officer, in September at the Scotiabank Financials Summit.
But the stock is no longer cheap and unpopular. It traded at a 20-per-cent discount to its peers in the insurance sector just one year ago, based on price-to-earnings ratios. Today, its valuation is in line with the group average, according to figures from Mr. Holden.
The case for buying the stock no longer rests on a comeback.
Instead, Manulife will need to deliver even better profitability while demonstrating that the so-called “mega-trends” it has identified – an aging population and a rising middle class in Asia, where it has substantial operations – remain on track.
Part of the journey is not pleasant: Reports this week said Manulife had cut hundreds of jobs in its global wealth and asset management business.
But investors may not mind. Since 2017, Manulife has increased its return on equity – or ROE, a ratio of financial performance that compares net income with shareholder equity – to nearly 16 per cent from 11 per cent, as it trimmed expenses, delivered more services online and retreated from less profitable lines of business such as long-term care.
The insurer now expects it can increase its ROE to more than 18 per cent by 2027.
It has also been delivering greater efficiency over this period. Its efficiency ratio, which compares expenses to revenue – a lower number is better – has fallen to 45.4 per cent as of the second quarter, down from 55.4 per cent in 2017.
Even the bond market – an important driver of investment income for insurers – may be working in Manulife’s favour.
Inflation has fallen, and central banks, including the Bank of Canada, have been cutting interest rates. However, the yield on the 10-year U.S. Treasury bond remains above 4.2 per cent, reflecting upbeat economic readings and concerns that if Donald Trump wins the coming U.S. presidential election and follows through on new tariffs, inflationary pressures could persist.
Meny Grauman, an analyst at Bank of Nova Scotia, expects that the low-yield era for long-term bonds, which persisted until inflation appeared in 2022, is over. And that, he said in a note this week, “remains a key positive for life insurance stocks.”
He is particularly enthusiastic about Manulife as the insurer continues to benefit from strong financial performance and a fresh reappraisal from investors.
Though the stock no longer trails its peers, the insurance sector as a whole trades at a reasonable valuation of 10.5-times estimated 2025 earnings, he said. What’s more, Mr. Grauman expects that Manulife can continue to narrow the valuation gap with rival Sun Life Financial Inc. and eventually trade at a premium.
A new high for the stock would require another 7.5-per-cent gain. It’s a small step, but one that will take Manulife – and loyal investors – into a new era.