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MetLife (MET) to Report Q2 Earnings: What's in the Cards?

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MetLife Inc. (MET - Free Report) is scheduled to report second-quarter 2017 results on Aug 2, after market close.

Last quarter, MetLife surpassed the Zacks Consensus Estimate by 15%. Earnings benefited from volume growth, continued expense discipline and higher fees from improved equity markets.

The company, however, does not have an impressive surprise history. Although it beat estimates in three of the last four quarters and missed in one, it witnessed an average negative surprise of 1.55%. This is depicted in the graph below:

MetLife, Inc. Price and EPS Surprise

MetLife, Inc. Price and EPS Surprise | MetLife, Inc. Quote

Let’s see how things are shaping up for this announcement.

Q2 Flashback

MetLife has a leading position in group benefits with a market share of 25% among the large employers. It is experiencing strong growth in the mid-market segment in this business. The company witnessed continued strong persistency and solid sales across all market segments, as well as in both core and voluntary products in the first quarter. We expect strong performance from this segment in the second quarter too as the company continues to invest in this space to create differentiated customer experiences, supported by strong enabling technology and leading data protection capabilities.

The company incurred derivate related losses of $602 million in the first quarter on account of low interest rates and strong equity markets. These macroeconomic factors remained largely unchanged in the second quarter, thus leading to expectations of derivate losses once again.

We expect the company’s Property and Casualty (P&C) segment to suffer from the underperforming auto insurance business. The company has been making targeted rate increases in auto insurance over the last past one year and will continue doing so in 2017. These price increases, along with other management actions, will push the combined ratio higher. Overall, P&C sales may also suffer due to price increases and management actions to drive value. Weather-related destruction in the months of April and May might also dent earnings from this segment, in the form of catastrophe loss.  

We also expect to see an increase in variable investment income driven by favorable hedge fund performance and strong private equity. The company’s bottom line will be aided by its expense management initiatives.

MetLife has been generating enough free cash flow which it uses for investment purposes and buying back shares. Repurchases made by the company in the second quarter will aid its bottom line.

Currency fluctuation will likely impart volatility to earnings.

Earnings Whispers

Our proven model does not conclusively show that MetLife is likely to beat on earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank of #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is not the case here as you will see below.

Zacks ESP: MetLife has an Earning ESP of 0.00%. This is because the Most Accurate estimate stands at $1.28 per share, in line with the Zacks Consensus Estimate. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Though MetLife carries a Zacks Rank #3, its 0.00% ESP makes our surprise prediction difficult.

We caution against Sell-rated stocks (Zacks Rank #4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks That Warrant a Look

Here are some companies that you may consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:  

Fiserv, Inc. will report second-quarter 2017 earnings results on Aug 1. The company has an Earnings ESP of +1.63% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Voya Financial, Inc. (VOYA - Free Report) has an Earnings ESP of +1.18% and a Zacks Rank #3. The company is expected to report second-quarter earnings results on Aug 1.

CME Group Inc. (CME - Free Report) has an Earnings ESP of +0.83% and a Zacks Rank #3. The company is expected to report second-quarter earnings results on Aug 1.

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