MetLife Inc. (MET - Free Report) has been a disappointment for growth-savvy investors’ due to its sluggish performance in recent years. We note that since 2015, the company’s top line has declined every year, which has affected its earnings growth rate despite sizeable share buybacks and cost saving initiatives over the period.
The stock has seen a downward revision in the Zacks Consensus Estimate for 2017 and 2018 earnings by 16.5% and 17%, respectively, over the last 30 days. This reflects pessimism about the company’s ability to perform.
Additionally, it has an unimpressive Growth Score of C and a Zacks Rank #5 (Strong Sell). Back-tested results show that stocks with Growth Style Score of A or B, when combined with a Zacks Rank #1 (Strong Buy) or 2 (Buy) handily outperform other stocks.
We note that the overall weakness has hurt MetLife’s returns in the last two years. The company has lost 4.2% against the industry’s gain of 15.1%.
What’s Dragging MetLife?
The company’s revenues have been declining for the last two years and the first half of this year was no exception. A mix of factors ranging from a decline in premiums, low investment income, decline in fees collected from Universal Life and investment type product and lower other revenues contributed to the downfall.
Though some of these revenue drivers are seeing a reversal (such as net investment income which increased in the first half of 2017 and is expected to increase ahead due growth in the investment portfolio), we expect pressure on other components such as premium (from currency volatility, competitive market conditions, exit of certain businesses) and Universal Life fees to continue. This will likely thwart top-line growth in the coming quarters.
In order to return to top-line growth, the company has been divesting non-core high risk and unprofitable operations.
One of the most significant steps taken in this direction was the separation of its U.S. Retail business named BrightHouse Financial, completed recently. The move freed MetLife from a capital-intensive business. It also saved the company from exposure to interest rate and equity market volatility related to the exited business. However, the company expects to incur charges of nearly $1.1 billion in the third quarter of 2017, relating to this exit which would drain earnings.
MetLife has also decided to close its UK Wealth Management business which was suffering from low interest rates. Though these steps will transform MetLife into a company with less volatility and more free cash flow, which should lead to higher return on equity, the top line will suffer to some extent from premium and fees lost on the exited businesses.
Other factors such as declining investment yields due to low interest rates, volatile equity markets, and foreign currency fluctuations have been dampeners.
Further, MetLife’s trailing 12-month return on equity (ROE) undermines its growth potential. The company’s ROE of 8.5% compares unfavorably with ROE of 15.9% for the S&P 500, indicating that it is relatively inefficient in using shareholder funds.
Here, we pick three multi-line insurance technology stocks that look attractive
CNO Financial Group, Inc. (CNO - Free Report) carrying a Zacks Rank #1(Strong Buy) is a holding company for a group of insurance companies operating throughout the United States. It develops, markets and administers supplemental health insurance, annuity, individual life insurance and other insurance products. Recent positive revisions have raised the 2017 Zacks Consensus Estimate for the company by 6% to $1.59 per share.
- One-year Return: 39%
- Average four-quarter Surprise: 6.7%
Kemper Corp. (KMPR - Free Report) specializes in property and casualty insurance, life and health insurance products for individuals, families, and small businesses. It sports a Zacks Rank #1. You can seethe complete list of today’s Zacks #1 Rank stocks here.
Recent positive revisions have raised the 2017 Zacks Consensus Estimate for the company by 20.1% to $1.67 per share.
- One-year Return: 31.8%
- Average four-quarter Surprise: 57.5%
MGIC Investment Corp. (MTG - Free Report) , carrying a Zacks Rank #2 (Buy), is the leading provider of private mortgage insurance coverage in the United States to the home mortgage lending industry.
- One-year Return: 44.1%
- Average four-quarter Surprise: 31.9%
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