Reasons That Make the Stock of MetLife (MET) Attractive Now


MetLife Inc.’s (MET Quick QuoteMET ) is poised for growth on the back of a strong economy and  an improving employment scenario is expected to its boost insurance sales and aid its top line. Cost-saving initiatives, business streamlining and acquisition in the growth areas place it right on the long-term growth trajectory.

After suffering revenue declines in 2020, green shoots of growth are now visible with the most recently reported earnings beating estimates in the fourth straight quarter.

Analysts’ growing bullishness on the stock is visible from the upward revision in 2021 and 2022 earnings estimates. h Estimates have moved 10.8% and 0.4% north each over the past 30 days and seven days, respectively.

This stock has a Zacks Rank #2 (Buy) at present and a Value Score of A. It has been proved time and again that stocks with a Zacks Rank #1 (Strong Buy) or 2 along with a Value Score of A or B offer best investment opportunities. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here

Business Tailwinds

After enduring revenue weakness and high claims, things are now looking up for this multiline insurer. Revenues in the first six months of 2021 were up 12% after dipping 2.6% in 2020. The case for revenue growth looks strong for the insurer as the bettering employment scene is expected to drive the sales of its group benefits insurance business. A glimpse of the same was seen in the surging sales of Group Benefit insurance this year. Management also commented that the company is on track to deliver a record sales period in 2021.

Its underwriting margins are also experiencing a respite from the COVID-led surge in claims. With the vaccination rollout, claims are expected to decline, which will contribute to margins.

The company is also managing its investment income well. For insurers, low interest rate is a pain as they invest the premium received and generate investment income from it. But MetLife is navigating this weak interest environment by its sound investment strategy in private equity. It is has investments in domestic leveraged buyout (LBO) funds, European LBOs and venture capital.

In the third quarter, private equity is expected to perform well owing to a strong equity markets performance from April through June. For 2021, the company expects a variable investment income between $1.2 billion and $1.4 billion on assumption that private equity will remain strong.

MetLife is strategically positioning itself for long-term growth by streamlining its business and to this end, it already disposed a number of businesses. Some of these are the divestments of BrightHouse Financial, UK Wealth Management business, Hong Kong business and MetLife Auto & Home to Farmers Insurance. In June, the company announced that it will be selling off its wholly-owned subsidiaries in Poland and Greece, a portion of its Europe business.

MetLife’s diversification strategy by acquiring business is also appreciative. Of late, it acquired Versant Health, a leader in vision care, PetFirst, a pet insurance company and Willing, a digital estate planning company. These acquisitions will lead to business diversification and inorganic growth for the company.

Alongside the company is also working well to grow its margin by slashing costs. As a result of its efficient cost management, it achieved a 230-basis point improvement in the annual direct expense ratio from 2015 to 2020. For 2021 and 2022, the same is expected to be 12.3%.

A look at its profitability shows that its return on equity (ROE) is better than the industry average. Its ROE of 10.8% has grown over the past few years and is higher than the industry’s 9.8%. This reflects its efficiency its utilizing its shareholders’ funds.

Strong Capital Position and Steady Dividend Record

Armed with a solid balance sheet and a strong cash generating capability, the insurer is able to successfully carry out its strategic initiatives and reward its shareholders with dividend payments and share buybacks. It expects to generate approximately $20 billion of free cash flow over the five-year period from 2020 to 2024, an amount equal to more than 40% of its current market capitalization.

Another allure for investors is its  its dividend payment, which has grown at a CAGR of 10%over the past decade. Recently, the company hiked its payout by 4.3%.  Its dividend yield of 3.3% is higher than the industry average of 2.2%. In the second quarter of 2021, the company authorized a new share buyback plan of up to $3 billion.

Compelling Valuation

The company currently has a 12 month forward price-to-earnings ratio of 8.1, which makes it an attractive option compared with the industry average of 10.7. The same also lies below the 5-year median of 8.43. This modest valuation makes it a compelling buy.

Stock Price Performance

Year to date, the stock has rallied 30.5% compared with the industry’s growth of 13.2%.

Zacks Investment Research
Image Source: Zacks Investment Research

Other stocks in the same space including Prudential Financial Inc. (PRU Quick QuotePRU ) , American International Group Inc. (AIG Quick QuoteAIG ) and The Hartford Financial Services Group, Inc. (HIG Quick QuoteHIG ) have also jumped 35.9%, 42.9% and 37.4% respectively, in the same time frame.


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