Sun Life Financial Inc. is poised to raise its dividend the very first time since the financial crisis and repurchase a lot more than $200-million of its stock, says Peter Routledge, analyst at National Bank Financial.
“Sun Life possesses two franchises that are, for the first time since at least the mid-2000s, simultaneously throwing off excess cash in a fairly reliable clip,” he explained in a note to clients.
“Besides this give Sun Life the financial flexibility to think about adding to its franchises via acquisitions but additionally to repurchase common shares and increase its dividend.”
Mr. Routledge upgraded his recommendation on Sun Life shares to sector outperform from sector perform and raised his price target to $45 from $42.
The new price target represents potential upside of 15% in line with the stock’s closing price of $39.09 on Wednesday.
The analyst said the greatest risk to his $45 target is the stability of Sun Life’s life insurance coverage contract liabilities, but he believes there\’s a fair margin of safety in his rating.
The multiple that he used to value MFS, Sun Life’s U.S. asset manager, is still quite low in accordance with peers, he said, while the return on equity assumed for its Sun Life Assurance division remains conservative to reflect today’s low interest rate environment.
“If long-term interest rates rise and/or when the market gets more optimistic towards MFS\’ prospects, we expect our $45 price target could be too low,” he explained.