Recent analytical reports from some of the top financial analysts in Canada have suggested that Manulife Financial is well positioned to make an acquisition in the U.S. for the following four reasons:
(i) Its valuation compared to U.S. life insurance companies has improved, as it is currently trading at a 19% premium to selected peers versus 6% in June
(ii) it has $3 billion in excess capital
(iii) The rising Canadian dollar versus the U.S. dollar
(iv) its ability to generate significant synergies in many of its lines of business.
Some analysts have suggested that a U.S. acquisition would be 2 to 13% accretive to Manulife shareholders and have identified seven U.S. insurance companies as potential targets.
In particular, Royal bank Analysts have identified Lincoln National (LNC) and Principal Financial (PFG) as a good fits with Manulife due to their ability to add scale to the U.S. mutual fund and 401 (k) operations, enable synergies in U.S. insurance and variable annuities and allow Manulife to expand into U.S. group life and health segment.
For these reasons, it is suggested that Manulife deserves the premium valuation that it trades at compared to Canadian financial services companies and life insurer’s worldwide.
In addition, the company’s sales and earnings track record, excess capital holdings, growth prospects in Asia and lower credit risk profile make it even that much more attractive to dividend growth investors.