Back to top

Image: Bigstock

MetLife Banks on Cost-Control Initiatives, Cat Loss a Woe

Read MoreHide Full Article

MetLife, Inc. (MET - Free Report) is well poised to benefit from cost-curbing efforts and solid balance sheet. However, the company’s exposure to catastrophe loss has rendered its underwriting results volatile.

The company has a trailing four-quarter earnings surprise of 6.73%, on average. The Zacks Consensus Estimate for third-quarter earnings have been revised upward by 4.6% over the last seven days.

MetLife released second-quarter results last week. Its earnings of 83 cents per share missed the Zacks Consensus Estimate by 13.5% and declined 39.9% year over year. The company’s results were negatively impacted by lower revenues. The top line also plunged 15.9% year over year.

Let’s delve deeper and analyze the factors driving the company’s performance.

Factors at Play

The multiline insurer continues to benefit from prudent cost-control efforts, which has been driving efficiencies for MetLife. This, in turn, has improved its expense ratio from the past few years and also aided margins. With an expense ratio of 12.2% in the first half of 2020, the company is on track to deliver a direct expense ratio of 12.3% for 2020.

Moreover, the company’s Europe, the Middle East and Africa (EMEA) segment has performed well in the second quarter. The segment’s earnings surged 51% year over year primarily driven by favorable underwriting and expense margins. Notably, all the remaining segments of MetLife did not perform well in the quarter.

Furthermore, the company’s solvency position looks strong, which will help it tide over the prevalent difficult operating environment. As of Jun 30, 2020, the company’s long-term debt of $14.5 billion was lower than its cash and cash equivalents of $24.3 billion. This implies that the company has sufficient cash reserves to meet its debt obligations. Also, its total debt to total equity of 23.7% as of Jun 30, 2020 compared favorably with the prior-quarter figure of 25.5%.

Additionally, MetLife generates solid free cash flows, which enables it to undertake prudent capital deployment measures via buybacks and dividend payouts. Its dividend yield of 4.9% is higher than the industry’s average of 2.8%.

Shares of this Zacks Rank #3 (Hold) multiline insurer have lost 13.3% in a year compared with the industry’s decline of 14.7%.

However, the company’s top line has remained under pressure due to disruption created by the COVID-19 pandemic. It further expects a challenging face-to-face global sales environment, decline in sales across most segments, and lower adjusted PFO in majority of its segments barring Group Benefits.

MetLife’s property and casualty (P&C) business has been exposed significantly to catastrophe loss. These losses have continued to impart volatility to company’s underwriting results, which in turn, has led to deterioration in its combined ratio. Nevertheless, we believe that the company’s strong fundamentals are likely to help it gain momentum in the days ahead.

Stocks to Consider

Some better-ranked stocks in the insurance space include Fidelity National Financial, Inc. (FNF - Free Report) , First American Financial Corporation (FAF - Free Report) and Primerica, Inc. (PRI - Free Report) . While Fidelity National sports a Zacks Rank #1 (Strong Buy), First American and Primerica carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Fidelity National, First American and Primerica beat estimates in each of the trailing four quarters, the average surprise being 32.13%, 20.84% and 7.24%, respectively.

Zacks’ Single Best Pick to Double

From thousands of stocks, 5 Zacks experts each picked their favorite to gain +100% or more in months to come. From those 5, Zacks Director of Research, Sheraz Mian hand-picks one to have the most explosive upside of all.

With users in 180 countries and soaring revenues, it’s set to thrive on remote working long after the pandemic ends. No wonder it recently offered a stunning $600 million stock buy-back plan.

The sky’s the limit for this emerging tech giant. And the earlier you get in, the greater your potential gain.

Click Here, See It Free >>

Published in