Great-West Lifeco Navigates Near-Term Headwinds Amid Positive Full-Year Outlook

National Bank Financial’s recent analysis of Great-West Lifeco (TSE: GWO) underscores a familiar tension in the insurance sector: short-term turbulence against a backdrop of cautious optimism. While the company’s Q1 2025 earnings estimate was trimmed due to near-term challenges, its full-year outlook retains momentum, suggesting that investors may want to look beyond the first quarter’s soft patch.

Q1 2025: A Step Back, But Not Out

Analyst G. Dechaine revised Great-West Lifeco’s Q1 2025 EPS estimate downward to $1.16, from an earlier forecast of $1.21, marking a 4% reduction. This adjustment comes despite the company reporting a 5% increase in base earnings, which typically exclude volatile items like investment gains or losses. The disconnect between base earnings growth and the lower EPS estimate suggests that one-time expenses, regulatory headwinds, or shifts in accounting policies may have dampened reported profits.

The analyst’s focus on refining near-term expectations while maintaining a full-year EPS target of $4.45—up 1.1% from 2024’s $4.39—hints at confidence in the company’s ability to recover later in the year. National Bank’s quarterly projections for 2025 show a gradual improvement:
- Q2: $1.16 EPS
- Q3: $1.18 EPS
- Q4: $1.20 EPS

This trajectory implies that the company is navigating a temporary setback rather than facing a structural decline.

The Path to Recovery: What’s Driving the Outlook?

The improving quarterly forecasts align with two key trends in the insurance sector. First, rising interest rates, while a mixed blessing for insurers, have started to boost investment returns on long-duration assets. Great-West Lifeco’s exposure to fixed-income markets, particularly in Canada and the U.S., may benefit as yields stabilize. Second, the company’s diversified portfolio—spanning life insurance, pensions, and wealth management—buffers it against sector-specific risks.

However, headwinds persist. Canadian insurers face lingering pressures from low bond yields, regulatory changes in pension accounting, and heightened competition. National Bank’s analysis does not specify the exact cause of the Q1 downward revision, but industry peers like Sun Life Financial (TSE: SLF) and Manulife (TSE: MFC) have cited similar challenges, including elevated claims costs and slower premium growth.

How Does GWO Stack Up Against Peers?

A broader view of the Canadian insurance sector reveals that GWO’s full-year EPS growth of 1.1% is modest compared to peers. Sun Life, for instance, is projected to grow its EPS by 4.3% in 2025, while Manulife’s estimates show a 2.1% increase. This suggests that Great-West Lifeco’s recovery may lag slightly behind its rivals, though its stronger balance sheet and lower debt levels could offer resilience in a downturn.

Stock Performance: A Test of Investor Patience

Investors have yet to fully price in Great-West Lifeco’s recovery narrative. Its stock has underperformed peers over the past year, partly due to concerns about the prolonged low-rate environment and its heavy reliance on annuities, which are sensitive to interest rate fluctuations.

However, if the company’s Q3 and Q4 earnings rebound as forecasted, the stock could regain momentum, especially if broader market conditions for insurers improve.

Conclusion: A Steady Hand in Volatile Waters

Great-West Lifeco’s Q1 stumble is a speed bump, not a roadblock. With a diversified portfolio, strong capital position, and a projected EPS trajectory that climbs steadily through 2025, the company remains a viable long-term hold for investors willing to overlook short-term volatility.

The 5% base earnings growth in Q1, while overshadowed by the EPS cut, signals underlying operational strength. If the company can sustain this trend while navigating regulatory and macroeconomic headwinds, it could deliver on the $4.45 full-year EPS target, which would represent its highest annual earnings since 2019.

For investors, the key question is whether the stock’s current valuation—trading at roughly 12.5x forward P/E, below its five-year average of 14.2x—offers sufficient margin of safety. With a dividend yield of 4.8% and a track record of consistent payouts, Great-West Lifeco could attract income-focused investors even as it waits for its top-line growth to catch up.

In a sector where patience is a virtue, GWO’s blend of stability and modest growth potential positions it as a reliable, if unglamorous, choice for conservative portfolios.