Manulife Financial Corp. was enjoying its biggest one-day percentage gain in about a year-and-a-half on Thursday afternoon, after reporting a smaller-than-expected loss in the third quarter. However, despite beating expectations, analysts so far are shying away from boosting their target prices and recommendations on the stock.
Can you blame them? Manulife shares had been on a devastating slide before Thursday, sinking nearly 40 per cent from their January high point. During the journey, analysts had repeatedly hacked away at their target prices, with the average falling from about $25 at the start of the year to a recent low of $15.35. Meanwhile, the "hold" recommendations on the stock outnumbered the "buy" recommendations by a score of 10 to 4 (with one "sell").
So far, there haven't been any changes. That said, the early response to Manulife's earnings report is encouraging. The insurer reported a loss of $947-million or 55 cents a share, versus expectations for a loss of 77 cents. After excluding one-time items, the company had a profit of $779-million.
Manulife's recent fortunes - er, misfortunes - have been closely tied to the performance of the stock market, since it has offered investors a sort-of guaranteed performance on some of its investment products.
But as Michael Goldberg at Desjardins Securities noted, third-quarter equity performance boosted Manulife's earnings by 40 cents a share, well above the 27 cents he had been expecting. At the same time, low interest rates hurt Manulife's earnings by just 20 cents a share - less than half of what Mr. Goldberg had been expecting.
"Manulife presented its targets to further reduce equity and interest rate sensitivity," he said. "As of [the end of the third quarter] 25 per cent of its earnings' sensitivity to equity market and interest rate movements was hedged. Manulife plans to have [about]60 per cent of earnings sensitivity to equity markets hedged by end-2012 and 75 per cent by 2014."
David Berman