– By GF value
The stock of Manulife Financial (NYSE: MFC, 30-year financials) would be slightly undervalued, according to the calculation of GuruFocus Value. GuruFocus Value is GuruFocus’ estimate of the fair value at which the stock should trade. It is calculated based on the historical multiples at which the stock has traded, past business growth and analysts’ estimates of the company’s future performance. If a stock’s price is significantly above the GF value line, it is overvalued and its future performance may be poor. On the other hand, if it is significantly lower than the GF value line, its future return is likely to be higher. At its current price of $21.35 per share and market capitalization of $41.4 billion, Manulife Financial’s stock looks slightly undervalued. The GF value for Manulife Financial is shown in the table below.
Since Manulife Financial is relatively undervalued, the long-term return on its stock should outpace its business growth, which has averaged 11.6% over the past five years.
Link: These companies can offer higher future returns with reduced risk.
Companies with weak financial strength offer investors a high risk of permanent capital loss. To avoid a permanent capital loss, an investor should do their research and examine a company’s financial strength before deciding to buy stock. A company’s cash-to-debt ratio and interest coverage are a great way to understand its financial strength. Manulife Financial has a cash-to-debt ratio of 1.87, which puts it in the middle of the insurance industry. Manulife Financial’s overall financial strength is 5 out of 10, indicating that Manulife Financial’s financial strength is acceptable. Here is Manulife Financial’s debt and cash flow over the past few years:
It is less risky to invest in profitable businesses, especially those that have demonstrated consistent long-term profitability. A business with high profit margins is also generally a safer investment than a business with low profit margins. Manulife Financial has been profitable 10 of the past 10 years. In the last twelve months, the company had revenue of $57.5 billion and earnings of $2.198 per share. Its operating margin is 0.00%, which ranks it in the bottom 10% of companies in the insurance industry. Overall, GuruFocus ranks Manulife Financial’s profitability at 6 out of 10, indicating fair profitability. Here are the revenues and net income of Manulife Financial for the past few years:
One of the most important factors in evaluating a business is growth. According to research from GuruFocus, long-term stock performance is highly correlated with growth. Companies that grow faster create more value for shareholders, especially if that growth is profitable. Manulife Financial’s average annual revenue growth is 11.6%, which ranks better than 78% of companies in the insurance industry. The average 3-year EBITDA growth is 27.9%, which ranks better than 88% of companies in the insurance industry.
A company’s profitability can also be assessed by comparing its return on invested capital (ROIC) to its weighted average cost of capital (WACC). Return on Invested Capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. Over the past 12 months, Manulife Financial’s ROIC is 0.79 while its WACC is 8.79. Manulife Financial’s historical comparison of ROIC and WACC is shown below:
Overall, the stock of Manulife Financial (NYSE: MFC, 30-year financials) is believed to be slightly undervalued. The company’s financial situation is correct and its profitability is correct. Its growth ranks better than 88% of companies in the insurance industry. To learn more about Manulife Financial’s stock, you can view its 30-year financial statements here.
To discover high quality companies that can deliver above average returns, please check out GuruFocus High Quality Low Capex Screener.
This article first appeared on GuruFocus.