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Why MetLife (MET) is Worth Adding to Your Portfolio Now

Zacks Equity Research

It seems to be a wise decision to add MetLife, Inc. MET stock to your portfolio now, given the company’s efforts to improve efficiency and enhance profitability through operational excellence initiatives and business streamlining. Also, its cost control efforts should lead to margin growth.

MetLife’s encouraging capital-deployment activities reflect its strong balance sheet position. Further, the company has an impressive earnings surprise history. It surpassed the Zacks Consensus Estimate in each of the trailing four quarters, with an average positive surprise of 9.7%.

The company’s Zacks Consensus Estimate for 2019 earnings has been revised slightly upward over the past 30 days. The stock currently carries a Zacks Rank #2 (Buy).  You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Furthermore, shares of the company have lost around 15% in a year’s time compared with 20% decline recorded by the industry.

There are a number of other aspects that make MetLife an attractive investment option.

Why MetLife Holdings is a Good Buy

Strong Outlook For 2019:  The company targets an ROE of 12% to 14% for 2019, to be achieved by business growth and expense control. It expects free cash flow of 65% to 75% of adjusted earnings for 2019. In its U.S. business, the company expects strong Group Benefits, operating premiums, fees and other revenues (PFOs) are expected to grow 4-6%. Investment income spread is expected within 100-125 bps in Retirement and Income Solutions.

For Property and Casualty, operating PFO growth is expected in the range of 2-4% for 2019 and the overall combined ratio should be within 93-98%.

In International business, Asia should see mid-single-digits growth in operating PFO and high single-digits growth in earnings on a constant currency basis. For Latam, MetLife is looking for mid-single-digit operating PFO growth and high-single to low-double-digit growth in earnings on a constant currency basis.

For EMEA, the company expects mid-single-digit PFO growth and roughly flat adjusted earnings in 2019 on a constant currency basis.

For MetLife Holdings, operating PFO is expected to decline 5%, while operating earnings is expected to be $1.0-1.2 billion. The company expects corporate and other after-tax earnings of $550 million to $750 million. It expects pre-tax 2019 expense initiative costs of roughly $300 million. The effective tax rate is expected in the range of 18-20%.The favorable growth outlook from the company reinforces our confidence in the stock.

Business Streamlining: MetLife has divested a number of its business lines in order to focus on high-growth, core and low-risk businesses. Some of the recent sales were that of the UK Wealth Management business, which was suffering from low interest rates; and MetLife Afore, S.A. de C.V., a pension fund management business in Mexico.

The most notable was its separation of U.S. Retail business named BrightHouse Financial, completed recently. This business required MetLife to hold a huge capital buffer and placed it at a significant competitive disadvantage. It freed MetLife from a capital-intensive business. and saved it from exposure to interest rate and equity market volatility related to the exited business.

Balance Sheet Strength: MetLife has a strong risk-based capital position, sufficient liquidity and a low debt ratio (35% compared with the industry’s ratio of 49%). The company also manages its capital efficiently. It has been buying back shares, thereby aiding its bottom line. In November 2018, the company announced an additional $2 billion of share repurchases, bringing its current authorized buyback capacity to almost $2.5 billion.

Superior Return on Equity:  Further, MetLife’s trailing 12-month return on equity (ROE) reinforces its growth potential. The company’s ROE of 9.8% compares favorably with ROE of 8.1% for the industry, reflecting its tactical efficiency in using shareholder funds.

Stock Looks Undervalued: The stock currently has a Value Score of A. The Value Score condenses all valuation metrics into one actionable score, which helps investors to steer clear of value traps and identify stocks that are truly trading at a discount. Our research shows that stocks with a Style Score of A or B, when combined with a Zacks Rank #1 (Strong Buy) or 2, offer the best upside potential. The company’s 12-month forward piece-earnings ratio is 7.8 compared with the industry’s P/E ratio of 8.4, which provides an attractive buy opportunity at reasonable levels.

Other Stocks

Other stocks worth considering are Assurant, Inc. AIZ, CNO Financial Group, Inc. CNO and MGIC Investment Corp. MTG, each with a Zacks Rank #2.

Assurant and MGIC Investment surpassed earnings estimates in each of the four reported quarters, with an average positive surprise of 10% and 34%, respectively.

CNO Financial beat estimates in two of the four reported quarters, with an average positive surprise of 11.7%.

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