TSX Commentary

Industrial Alliance Insurance (IAG) – $33.30 – Raising EPS Estimates Following Strong Quarter
Sector Perform, Average Risk, Price Target: $38.00
Industrial Alliance reported Q4 core EPS of $0.77 compared to consensus of $0.69. RBC CM raised its EPS estimates for 2010 and 2011 from $2.75 to $2.95 and $3.10 to $3.30, respectively, primarily on better expected results from the company’s individual insurance division owing to lower levels of new business strain and an improved outlook for expected profit. RBC CM’s 12-month target price increases $1 to $38 as RBC CM has raised its estimated 2011 EPS by $0.20 to $3.30. RBC CM expects Industrial Alliance’s ROE to be higher and its earnings less volatile than those of Manulife and Sun Life, but the stock’s P/E valuation already reflects those factors. Industrial Alliance trades at a premium P/E and book value multiple to Manulife and Sun Life, whereas it has historically traded at a discount to Manulife and a similar valuation to Sun Life. While this premium valuation is justified based on the outlook for profitability in 2010 and 2011, RBC CM does not expect material expansion in the relative gap at this time. Industrial Alliance trades at 10.1x RBC CM’s estimate of 2011 EPS, compared to 9.5x and 9.0x for Manulife and Sun Life.