Key Takeaways
- Sun Life Financial fell 10% after its third-quarter report showed US$26.9 billion of net outflows at MFS, and two brokers downgraded it.
- Underlying EPS rose 10%, and the 29% drop in reported profit came mostly from interest rates, deal costs and a gain in last year’s quarter.
- T. Rowe Price’s equity outflows and Unum’s jump in disability claims show both problems are industry-wide.
- The stock went into the report near its five-year-high valuation, and MFS’s outflows put 2027 estimates at risk.
Sun Life Financial (SLF) sank 10% today after its third-quarter report, even though underlying EPS rose 10% to C$2.05 and the dividend went up 4%.
The trouble is MFS, its US fund manager: net outflows hit US$26.9 billion, against US$0.9 billion a year earlier. It’s not just Sun Life. T. Rowe Price (TROW) lost a net US$28.3 billion in the same quarter, and Unum Group (UNM) just reported the same spike in disability claims that hit Sun Life’s US benefits business.
National Bank cut the stock to Sector Perform before the open, and TD cut it to Hold.
MFS is the real problem
CEO Kevin Strain said on the call that “U.S. retail investors continue to favor passive strategies.” MFS earned about a quarter of Sun Life’s underlying net income, and rising markets kept its earnings flat.
T. Rowe Price feels it too: US$25.6 billion of its outflows came from equity funds. But T. Rowe manages about three times MFS’s assets, so MFS is losing assets roughly three times as fast. Analysts already expect T. Rowe’s EPS to dip in 2027.
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Reported profit looks worse than it is
Reported net income fell 29%, mostly on interest rates, deal costs and a C$176 million gain in last year’s quarter.
Disability claims are the other worry. National Bank’s Gabriel Dechaine said Sun Life’s US results had improved, but “a new headwind emerges.” Strain called them an industry trend, and Unum bears him out: its group disability benefit ratio jumped to 67.1% from 47.8% a year earlier, partly on higher claim incidence, in its biggest US line by premium.
Still priced for growth
Going in, analysts expected EPS to climb through 2028:
This quarter keeps 2026’s C$8.00 on track. It’s 2027’s C$8.62 that’s at risk as MFS’s assets shrink.
The stock was priced for it, at nearly 14x forward earnings at the last close:
At today’s price it’s about 12x, still above its 11x five-year average.
The way I see it, the reported drop is noise, and insurers can reprice for disability claims. MFS is different: as long as retail money keeps moving to index funds, a quarter of Sun Life’s earnings sits on a shrinking base. I’d wait for those outflows to slow before buying the dip.
Of course, flows can turn, and February’s fourth-quarter report will show whether they have.
So what is Sun Life stock actually worth?
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Disclaimer:
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