Sun Life Earnings: Weaker Underwriting Results Affect Profitability; We Maintain Our Fair Value

No-moat-rated Sun Life Financials’ first-quarter results were adversely affected by higher morbidity claims and weaker results in its US dental business due to Medicaid redeterminations. The company reported underlying net income of CAD 875 million or CAD 1.50 per share in the first quarter, down 1.3% versus CAD 895 million or CAD 1.52 per share in the first quarter of the previous year. The first-quarter results equated to an annualized underlying return on equity of 16.0%, which is lower than management’s medium-term guidance of 18%. The company paid a quarterly dividend of CAD 0.78 per share in the first quarter, which represents a 4.5% dividend yield as per the current stock price. We are maintaining our CAD 66 fair value estimate for Sun Life after incorporating the first-quarter results.