In an effort to drive up shareholders’ returns, the board of multi-line insurance giant MetLife Inc. (MET - Free Report) announced the sanction of a new $3 billion share repurchase program.
The new buyback program, its largest ever, is in line with management’s long-term target of generating incremental shareholder returns. The news cheered investors and pushed the stock up to a 52-week high of $54.98.
This announcement came just after the company finalized the separation of its U.S. life insurance unit Brighthouse Financial Inc. This strategic business restructuring was primarily aimed at detaching itself from the business that posed significant earnings as well as capital risk. Now that MetLife will part ways with this business, it expects significant improvement in its profitability, capital levels and cash flow generation which will help in funding the new share buyback.
The company wants to appease its investors and convey the message that it is on track to generate a higher free cash flow with the new share buyback. It is noteworthy that MetLife has grown its dividend by 116% over the past three years.
Prior to this, MetLife raised its share buyback authorization to $1 billion last September, and before that a $1 billion stock buyback program was introduced in Dec 2014 and completed in first-quarter 2015. MetLife shelved share buyback from 2008–2014 since it was deeply mired in financial crisis, and as such did not return wealth to shareholders in its full capacity in the past.
MetLife is resorting to share buyback as one of the ways to remain profitable in an environment where business growth remains difficult to attain because of sluggish markets. MetLife seems bothered by a host of factors ranging from regulatory to macroeconomic to industry specific issues. While regulatory hurdles are from the appeal of the U.S. District Court decision which rescinded its designation as a systemically important financial institution (SIFI), macroeconomic factors such as foreign currency, equity markets and interest rates pose as challenges. Industry-specific headwinds such as cat loss and lower business from Japan have also dampened earnings.
Another company American International Group Inc. (AIG - Free Report) authorized the repurchase of additional shares of up to $3.0 billion in August.
Zacks Rank and Other Stocks
MetLife carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the same space are Prudential Financial Inc. (PRU - Free Report) and James River Group Holdings, Ltd. (JRVR - Free Report) , carrying a Zacks Rank #2 (Buy) each. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Prudential Financial has seen an upward revision in 2016 earnings estimates over the past seven days by 1.3% to $8.89. The same for James River has gone up by 4.1% to $2.28 per share over the same time frame.
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