Manulife nicely valued

Manulife Financial Corp. has been upgraded to Outperform from Sector Perform by RBC Capital Markets.

"While we believe that Manulife will not earn the same kind of ROEs as it has in the past and that the volatility of its earnings shoud be greater than in the past, we believe that the stock's valuation more than reflects that reality and that the worst is behind in terms of earnings surprises, based on current equity market levels and interest rates," Andre-Phillipe Hardy, RBC Capital Markets analyst said in a note to clients.

Mr. Hardy said Manulife was trading at 9.9x estimated 2010 earnings, compared to a range of 10.1x to 11.1x for its three lifeco peers. On a normalized earnings basis, Manulife is also nicely valued, trading at 9.8x versus 9.2x to 10.8x for its peers.

"Those are attractive valuation levels compared to history as the company used to trade at a premium P/E valuation," the analyst wrote.

Over the past eight months, Manulife shares have risen almost 130% from a low around $9 in March. Now trading at roughly $20, they still remain half their value at the peak in April 2008.

Mr. Hardy reduced his price target on Manulife shares from $27 to $26.