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Here's Why You Should Retain MetLife Stock in Your Portfolio

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MetLife, Inc. (MET - Free Report) is well poised for growth on the back of its robust Group Benefits business and several cost-cutting initiatives.

The multiline insurer has a trailing four-quarter earnings surprise of 6.73%, on average.

Return on equity of 7.7% compares favorably with the industry’s figure of 7.5%, which implies efficient utilization of shareholders’ funds.

Factors Driving MetLife

This Zacks Rank #3 (Hold) company has been benefiting from its robust Group Benefits business through which it has been offering more than 35 group products and services. This business has enabled it to effectively cater to diverse needs of around 41 million U.S. employees and their dependents. It has also been proactive in undertaking steps to offer enhanced benefits solutions.

Case in point, the company inked a definitive agreement to acquire the leading vison care provider, Versant Health, last week. The deal will, in fact, make it the third largest U.S. vision insurer with around 38 million members. In the last month, the company has also partnered with Barnum Financial Group to offer financial education to workforces through its PlanSmart financial education programs.

Moreover, MetLife has been striving to control cost and increase efficiency. The impact of the efforts is evident from an improvement of 170 basis points (bps) in the annual direct expense ratio from 2015 to 2019. With the momentum getting sustained in the first half of 2020 as well, the company remains on track to achieve a direct expense ratio of 12.3% for this year.

These cost-cutting initiatives have been benefiting the company’s margins as reflected in its improving net margins. Notably in the second quarter, net margin improved 220 bps from 2019-end and 140 bps year over year.

Furthermore, MetLife has been making efforts to venture into diverse streams of business, which has enabled it to somewhat counter the adverse impact of increased claims triggered by the COVID-19 pandemic. While MetLife anticipates decline in U.S. life claims frequency for the third quarter, it expects considerable rise in Latin America claims frequency.

Additionally, the solvency position of this multiline insurer looks strong. It has sufficient cash reserves for meeting debt obligations. Its total debt to total capital of 20% at second-quarter end remains lower than the industry’s figure of 30.8%. The free cash flow generating abilities of MetLife has enabled it to effectively deploy capital through share buybacks and dividend payouts. Its dividend payments, which have witnessed a 7-year CAGR growth of 7.6%, have been last hiked in April of this year. Also, the dividend yield of 4.9% compares favorably with the industry’s figure of 2.9%.

However, shares of MetLife have lost 21.6% in a year compared with the industry’s decline of 25.4%. Induced by the uncertain operating environment at present, the company 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 for the third quarter. Lower interest rates might put pressure on its net investment income.

Nevertheless, we believe that the multiline insurer’s strong fundamentals are likely to help the stock bounce back in the days ahead.

Stocks to Consider

Some better-ranked stocks in the same space are Assurant, Inc. (AIZ - Free Report) , James River Group Holdings, Ltd. (JRVR - Free Report) and Old Republic International Corporation (ORI - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

Assurant, James River Group and Old Republic surpassed earnings estimates in each of the trailing four quarters by 6%, 14.86% and 36.72%, on average, respectively.

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