Sun Life's 2025 Results Show Asia Growth Offsetting U.S. Weakness, Maintaining High-ROE Profile

What happened

Sun Life Financial reported its fourth quarter and full-year 2025 results, revealing a mixed performance that aligns with the DeepValue report's base-case expectations. Asia underlying net income continued its strong growth trajectory, likely exceeding 15% annually, bolstering the company's high-ROE objective of 18%+. However, U.S. group benefits earnings remained pressured by persistent morbidity issues in medical stop-loss and disability, confirming earlier headwinds from healthcare cost inflation. Asset management segments displayed resilience, with SLC alternatives inflows helping offset MFS outflows, supporting fee income and capital-light earnings. Overall, the results validate mid-single-digit EPS growth but highlight ongoing execution risks in the U.S. operations.

Implication

The robust Asia performance reinforces the growth pillar, reducing reliance on volatile North American markets and supporting the premium valuation narrative. Persistent U.S. weaknesses suggest that repricing efforts may extend beyond initial forecasts, potentially delaying ROE stabilization above 18%. Asset management's mixed flows indicate that fee-based income can provide a cushion, but sustained MFS outflows remain a risk to earnings growth. With the stock trading near 16x P/E, the market already prices in perfection, leaving limited upside without faster U.S. turnaround. Therefore, while the 4-4.5% dividend yield and strong capital (LICAT ~154%) offer downside protection, adding exposure is prudent only on pullbacks to the high-$50s attractive entry level.

Thesis delta

The investment thesis remains a potential buy, but the new results tighten the conditions for conviction. Asia's strength continues to drive EPS growth, yet the lack of improvement in U.S. group benefits earnings increases the risk of the bear case, where ROE could trend below 16%. Investors should monitor the next two quarters closely for signs of U.S. margin normalization before considering additional purchases at current prices.