Saturday, February 9, 2019

Investing using fundamentals - MFC

Manulife Financial Corporation is the last company whose shares we analyze. Manulife was the stock market darling for many years. This insurance company could do no harm and paid a reliable dividend until the financial crisis when it was hit by the damage of an too aggressively marketed financial product. The next CEO, Donald Guloien promised to transform Manulife’s balance sheet into a ‘fortress’ but the company became too conservative while the impact of legacy bad financial products kept on hurting the company along with a low interest environment enforced by central banks.

The company is still not back to its pre-2008 standing and performance. 
Figure 1 Manulife Financial Corporation fundamentals. DCF means discounted cash flow method. Click the image for a better quality view.

 The earnings graph in the upper right shows Manulife’s poor earnings quality and reflecting its management problems. The company has excellent exposure to insurance in Asia and as such it is not a complete write off. Also, it pays an excellent dividend although its pay-out ratio is good at 75% it is not optimal and clearly a lot less than the other companies we analyzed. If its current earnings trend persists, the company is on its way of extinction.  It is a falling knife no matter how great its dividend looks. It needs a lot of wind in its back before it turns around.

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