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Analyst Blog

Ahead of the Federal Reserve’s decision on the company’s capital plans, the shares of MetLife Inc. (MET - Analyst Report) has been witnessing strong momentum as it hit a new 52-week high at $58.40 on Mar 26. Particularly, this global multi-line insurer’s shares rose about 7.4% since the company reported its fourth-quarter 2013 results around mid-Feb with a positive earnings surprise of 5.4%.

The improved momentum of this Zacks Rank #3 (Hold) stock is driven by strict expense control coupled with aggressive focus on streamlining operations. Yesterday’s closing price represents a strong one-year return of about 39.5%, against 19% clocked by the S&P 500 index. Average volume of shares traded over the last three months stands at approximately 5,796.7K.

Earnings Review

On Feb 12, MetLife reported fourth-quarter 2013 operating earnings per share of $1.37, outperforming both the Zacks Consensus Estimate of $1.30 and the year-ago quarter earnings of $1.25. Operating earnings jumped 14% year over year to $1.56 billion.MetLife delivered positive earnings surprise in 3 of the last 4 quarters with an average beat of 6.5%.

Results reflected growth across the Americas, Asia and EMEA regions along with strong expense control and lower derivative losses, leading to improved return on equity (ROE). These were partially offset by consistent weakness in variable annuity products, declining leverage and low interest rates.

Rationale

MetLife’s long-term growth outlook appears reasonable amid the regulatory challenges and market risks. Management estimates emerging economies to contribute about 20% to earnings by 2016 from 14% in 2012, given increasing potential from the Middle East, Russia, Turkey, Poland, Southeast Asia and Mexico. Gradually, the company’s earnings contribution from international operations is projected to shore up to about 35% in 2014 from 15% in 2011.

Additionally, MetLife’s capital position remains one of the sturdiest in the industry, and is cushioned by a diversified portfolio mix and a leading brand. Going forward, the company’s efforts to restructure its redundant and loss-making operations and channelize capital to high-return business opportunities or to increase shareholder return. These factors also score well with the ratings agencies and investors, as reflected in the market’s positive reaction.

Some better-ranked insurers that warrant a look include OneBeacon Insurance Group Ltd. (OB - Snapshot Report), Amerisafe Inc. (AMSF - Analyst Report) and EMC Insurance Group Inc. . All these stocks sport a Zacks Rank #1 (Strong Buy).