MetLife (MET) Soars 128% in a Year: Will the Rally Continue?
MetLife, Inc. MET has been benefiting from a well-diversified portfolio driven by several buyouts, which are aimed at effectively managing risks. Cost-cutting efforts and a solid capital position are also contributing to growth.
Shares of the company have soared 127.9% in a year compared with the industry’s growth of 86.7%. The Zacks S&P 500 composite has risen 67.9% in the said time frame. With a market capitalization of $53.1 billion, the average volume of shares traded in the last three months was 5.8 million.
MetLife has an impressive earnings surprise history. It has beat estimates in three of the trailing four quarters and missed once, the average surprise being 8.24%.
The company’s trailing 12-month return on equity (ROE) of 8% remains higher than the industry’s ROE of 7.8%. This highlights tactical efficiency in using shareholder’s funds. It intends to maintain adjusted ROE between 12% and 14% in the near term.
Will the Bull Run Continue?
This Zacks Rank #3 (Hold) multiline insurer continues to benefit from a well-diversified portfolio of insurance and financial services products, which helps in managing risks amid the COVID-19 pandemic induced financial turmoil. MetLife also has several reinsurance agreements in place for minimizing losses and exposure to significant risks. These also boost future growth opportunities.
With interest rates across the United States likely to exhibit no sign of recovery until 2023, MetLife intends to shift its focus toward sales of less interest rate sensitive products. The company has been making technological upgradations for accelerating business operations and saving costs. Case in point, the company reported a better direct expense ratio of 12% in 2020 than its 12.3% target set for the near term.
In addition to offering property and casualty (P&C) and life insurance products, the company continues to aim at diversification of its business through buyouts. Time and again, it has ventured into the digital estate planning, pet insurance and vision insurance space and many others through these acquisitions. The company’s buyout of one of the leading U.S. managed vision care companies Versant Health completed in fourth-quarter 2020 bears testament to the same and intends to bolster MetLife’s vision benefit offerings. The same buyout is likely to provide an added boost to the expected low double-digits growth in the adjusted premiums, fees and other revenues (PFOs) of the company’s Group Benefits business in 2021.
While sales of the company’s Asia business are likely to witness double-digit growth during this year, the same of MetLife’s EMEA segment are likely to improve in mid-to-high single-digits in 2021. Notably, both the segments have been benefiting from higher volumes and prudent underwriting results. Apart from delving deeper into newer businesses in an effort to boost its portfolio, MetLife has been divesting businesses for quite some time to intensify focus on businesses with high growth potential and generate improved free cash flows over the long term.
Moreover, the solvency position of this multiline insurer looks strong. The company’s average free cash flow ratio of 78% during the 2019-2020 period remained higher than the 65-75% target range of the company. It has been committed to enhancing shareholder value through share buybacks and dividend payments. Notably, the company’s current dividend yield of 3% remains higher than the industry average of 2.2%.
The Zacks Consensus Estimate for 2021 earnings per share indicates year-over-year improvement of 2.6%.
Stocks to Consider
Some better-ranked stocks in the insurance space include Old Republic International Corporation ORI, James River Group Holdings, Ltd. JRVR and Alleghany Corporation Y. While Old Republic sports a Zacks Rank #1 (Strong Buy), James River Group and Alleghany carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Old Republic, James River Group and Alleghany have a trailing four-quarter earnings surprise of 65.77%, 11.63% and 88.46%, on average, respectively.
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