CIBC Capital Markets expects Canadian life insurers to post double-digit year over year earnings per share growth on average.
Great West Lifeco (GWO.TO) remains top pick. Analyst Paul Holden expects the company to post the highest Y/Y EPS growth in the first quarter (19%). There is potential upside from a number of growth levers at Empower and a strong demand backdrop for capital solutions, he adds. An Empower bolt-on acquisition is a potential catalyst with estimated EPS accretion of ~6%. The stock is trading at a 6% premium to the group average on P/E, consistent with the historical premium.
Manulife (MFC.TO) is another outperformer. Holden is looking for a better quarter from the company, noting that Manulife printed strong headline results last quarter but disappointed the Street on some KPIs. "We look for an improvement in U.S. insurance experience, Asia APE sales and GWAM net flows as potential upside drivers."
Holden also wants to see double-digit EPS growth and continued progress towards the 2027 18% ROE objective. Manulife is trading at a 5% discount to the group average P/E and recent history suggests an in-line multiple is possible, he adds.
CIBC lifted its Q1 EPS estimates for Great West Lifeco by 2%, Manulife and Sun Life by 1% each due to FX and company-specific factors, and decreased the estimate for iA Financial (IAG.TO) by 5% due to seasonality for U.S. dealer services and auto finance.
"As a group the stocks have not traded all that great YTD (+2.8% on average), and the discount to the banks on P/E now stands at 15% (five-year average is 11%)," Holden writes. He favors lifecos over banks given the valuation discount and strong fundamentals.
Price: $70.45, Change: $+1.18, Percent Change: +1.70%