Citing expectations that higher interest rates are just around the corner, UBS analyst Peter Rozenberg upgraded Manulife Financial Corp. to “buy” from “neutral.”

Life insurance companies generate most of their profits from the returns on investment portfolios that can provide funds for paying future claims. The low interest rates have limited insurance companies’ returns for years now.

But Mr. Rozenberg projects “moderately” higher interest rates are ahead, which should support the stock. “More so, an improving macro outlook, higher equity markets, and lower sensitivities reduce downside risk, which supports higher valuation,” he said.

While earnings per share and book value growth will remain constrained in the shorter term by continued low rates, he believes this is factored into the stock price. He also thinks valuation is “reasonable,” with the stock trading at a price-to-book ratio of 1.1 times, based on an expected 11 per cent return on equity.

Upside: Mr. Rozenberg raised his price target to $15.50 from $12.50.