Is Sun Life Financial (SLF) a Great Stock for Value Investors?
Zacks Equity Research
Updated
Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn’t want to find stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair value?
One way to find these companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. Let’s put Sun Life Financial Inc. SLF stock into this equation and find out if it is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks:
PE Ratio
A key metric that value investors always look at is the Price to Earnings Ratio, or PE for short. This shows us how much investors are willing to pay for each dollar of earnings in a given stock, and is easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock’s current PE ratio with: a) where this ratio has been in the past; b) how it compares to the average for the industry/sector; and c) how it compares to the market as a whole.
On this front, Sun Life Financial has a trailing twelve months PE ratio of 11.92, as you can see in the chart below:
This level actually compares pretty favorably with the market at large, as the PE for the S&P 500 compares in at about 19.99. If we focus on the stock’s long-term PE trend, the current level puts Sun Life Financial’s current PE ratio slightly above its midpoint over the past three years, with the number having remained relatively stable over the past few months.
Further, the stock’s PE also compares favorably with the Zacks classified Insurance – Life industry’s trailing twelve months PE ratio, which stands at 15.89. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that Sun Life Financial has a forward PE ratio (price relative to this year’s earnings) of just 11.72, so it is fair to say that a slightly more value-oriented path may be ahead for Sun Life Financial stock in the near term too.
P/CF Ratio
An often overlooked ratio that can still be a great indicator of value is the price/cash flow metric. This ratio doesn’t take amortization and depreciation into account, so can give a more accurate picture of the financial health in a business. This is a preferred metric to some valuation investors because cash flows are (a) generally less prone to manipulation by the company’s management and (b) are less affected by variation in accounting policies between different companies.
The ratio is generally applied to find out whether a company’s stock is overpriced or underpriced with reference to its cash flows generation potential compared with its competitors. However, it is not commonly used for cross-industry comparison, as the average price to cash flow ratio varies from industry to industry.
In this case, Sun Life Financial’s P/CF ratio of 10.37 is lower than the Zacks classified Insurance - Life industry average of 23.30, which indicates that the stock is undervalued in this respect too.
PEG Ratio
While earnings are certainly important, it is essential to know how much you are paying for the growth of earnings as well. One can easily do that with the PEG ratio (ratio of the P/E to the expected future earnings growth rate).The PEG ratio gives a more complete picture of the valuation of a stock than the P/E ratio.
Sun Life Financial’s PEG ratio stands at just 1.52, compared with the Zacks Insurance - Life industry average of 1.92. This suggests a decent undervalued trading relative to its earnings growth potential right now.
Broad Value Outlook
In aggregate, Sun Life Financial currently has a Zacks Value Style Score of ‘A’, putting it into the top 20% of all stocks we cover from this look. This makes Sun Life Financial a solid choice for value investors.
What About the Stock Overall?
Though Sun Life Financial might be a good choice for value investors, there are plenty of other factors to consider before investing in this name. In particular, it is worth noting that the company has a Growth grade of ‘C’ and a Momentum score of ‘D’. This gives SLF a Zacks VGM score—or its overarching fundamental grade—of ‘B’. (You can read more about the Zacks Style Scores here >>)
Meanwhile, the company’s recent earnings estimates have been rising. The current quarter has seen one estimate go higher in the past sixty days compared to none lower, similar to the full year estimate.
This has had just a small impact on the consensus estimate though as the current quarter consensus estimate has risen by 1.4% in the past two months, while the full year estimate has inched up by 1%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
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Sun Life Financial Inc. Price and Consensus
Sun Life Financial Inc. Price and Consensus | Sun Life Financial Inc. Quote
This positive trend is why the stock has a Zacks Rank #2 (Buy).
Bottom Line
Sun Life Financial is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Moreover, with a good industry rank (Top 14% compared to over 250 industries) and a Zacks Rank #2, it is hard to not get excited about this company overall. In fact, over the past year, the Zacks Insurance - Life industry has clearly outperformed the broader market, as you can see below:
So, value investors might want to grab the stock as it appears to be a compelling pick.
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