Expectations that interest rates will remain low for some time doesn't exactly translate into a screaming buy for Manulife Financial Corp., which, like other insurers, generates a big portion of income from money held in reserve to pay future claims.
But UBS thinks downside risks are at least limited and the company's Asian strategy is a bright spot on the horizon.
Asia represents one-third of Manulife's profits. In a recent investor day presentation, UBS said management did a good job of highlighting the unprecedented growth opportunity in the Asian middle class given the continent's high savings rates and low penetration of insurance and wealth products, UBS said in a note today.
"While no new quantitative targets were provided, management expects double-digit earnings growth in Asia." At the same time, they underlined that they will be disciplined buyers, not aiming to become auction winners at any price.
That's important, UBS points out, because it reduces the likelihood that it will make a large Asian acquisition that will dilute shareholder value as the company issues new equity or undertakes other means to help pay for it.
Manulife, like some other insurers right now, is trading just below book value, at 0.95 times. That alone doesn't make the stock a buy, but it does suggest a lot of negativity is already factored into the share price.
"We think that low interest rates and a major market decline remain the main risks; however, management has done a very good job of reducing risk and repositioning into higher margin areas," UBS analysts said. "Furthermore, downside appears increasingly reflected, but outside of much higher rates, which we do not expect, growth in book value is projected to be flat in the next two years limiting potential upside."
Downside: UBS raised its price target by 50 cents to $12 and reiterated a "neutral" rating.
Bank of Nova Scotia's purchase of ING Bank of Canada isn't winning much praise from Stonecap Securities analyst Brad Smith.
"At $3.13-billion, or 1.8 times reported June 30, 2012 book equity, the acquisition price is not cheap on a headline basis and is considerably greater than the $2-billion we had estimated." Still, he reiterated an "outperform" rating on Scotiabank, believing that management will have little trouble achieving stated near-term profit objectives.
The decision "to commit funds to what would appear to be a relatively low return domestic distribution and funding diversification pursuit speaks more in our view to the growth and profit challenges facing the domestic banking industry than anything else," he said in a note.
Upside: Mr. Smith maintained a $54 price target.
Dundee Securities analyst R. Jason Konzuk said he is "losing that lovin' feeling" for Celtic Exploration Ltd. after the company this week lowered its 2012 production forecast due to weather delays. He downgraded the stock to "neutral, high risk" from "buy", commenting that the "company's guidance misses appear to have a systemic quality to them."
Downside: Mr. Konzuk cut his price target by $1.50 to $20.
NuVista Energy Ltd. has sold 7,200 barrels of oil equivalent per day of non-core production, with much of the $236-million in proceeds to go towards debt reduction. The company's financial flexibility will get a significant boost and the deal will help improve NuVista's growth profile, commented CIBC World Markets analyst Adam Gill.
Upside: Mr. Gill raised his price target by 50 cents to $5.75 and reiterated a "sector outperformer" rating.
Goldman Sachs upgraded Bristol-Myers Squibb Co. to "conviction" buy from "buy." It sees a number of catalysts for the drug maker over the next 12 months "which should lead to increased investor confidence that BMY will be the fastest-growing drug company from 2013 until the end of the decade."
Upside: Goldman raised its price target by $2 to $40 (U.S.)
Follow Darcy Keith on Twitter at #eyeonequities