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MetLife Focuses on Streamlining Business to Boost Growth

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Business streamlining efforts taken by MetLife Inc. (MET - Free Report) in response to declining revenues sustained in 2015 and 2016 are paying off.

Lower investment yields, unfavorable underwriting, reserve addition from low interest rates and lower asset-based fee income adversely impacted the company’s results.

To gain back growth, MetLife took measures to streamline its business portfolio and reduce its vulnerability to low interest rates. In this vein, last year it separated its U.S. Retail business, which had exposed it to high capital regulations.

The spin-off has enabled the company to become less capital intensive with stronger free cash-flow generation.

Also, last year, MetLife closed its UK Wealth Management business, which was suffering from low interest rates.

Early this year the company also sold off MetLife Afore, S.A. de C.V., its pension fund management business in Mexico.  

Alongside disposing low-growth and high-risk businesses, MetLife is focusing on its core business lines — employee benefits, protection and fee-based retail products outside the United States, and its growing asset management arm.

In this vein, last year, MetLife acquired Logan Circle Partners, to enable MetLife Investment Management expand its domestic and international investment management business for third-party clients. This deal allowed the company to strengthen its position in institutional fixed income and real estate markets.

In its continued efforts to grow across new fixed-income strategies and expand in new markets, MetLife Investment Management, the institutional asset management platform for MetLife, tied up with State Street Corp. (STT - Free Report) . Earlier this year, MetLife Investments Asia Ltd. received its asset management license from the Securities and Futures Commission in Hong Kong.

Efforts to improve underwriting and increase sales were reflected in the company’s results, which saw a continued increase in revenues from 2017 to the first half of 2018.

Along with growing revenues, MetLife’s efforts to control costs will also aid its margins. In this regard the company in 2016 took commitment to realize $800 million in pre-tax savings by 2020, mainly by way of headcount reductions and technology upgradation and investments.

This Zacks Rank #2 (Buy) stock looks attractively poised for growth going forward, as an increasing interest rate environment along with easing regulatory pressures provides a conducive environment for growth.

The stock has seen the Zacks Consensus Estimate for current-year earnings being revised 0.8% upward over the last 30 days. The stock has lost 3.8% in a year’s time compared with the industry’s decline of 1.3%. The decline in the company’s share price gives an attractive entry point for investors.

 

Moreover, the stock is significantly undervalued and is currently trading at a forward 12-month price-to-earnings ratio of 8.5, which compares with the industry P/E ratio of 10. Given that the stock is trading at low valuation levels, it provides an attractive investment opportunity.

Also the stock carries an impressive Value Score of A. Our research shows that stocks with a Value Style Score of A or B when combined with a Zacks Rank #1 (Strong Buy) or 2 offer the best opportunities in the value investing space.

Some other stocks from the same space are The Progressive Corp. (PGR - Free Report) and The Navigators Group, Inc. (NAVG - Free Report) , both sporting a Zacks Rank #1.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Progressive provides personal and commercial auto insurance, residential property insurance and other specialty property-casualty insurance plus related services, primarily in the United States. The company delivered positive surprises in all the preceding four quarters with an average earnings surprise of 9.19%.    

Navigators Group underwrites marine, property and casualty plus professional liability insurance products and services in the United States and globally. The company came up with positive surprises in three of the preceding four quarters with an average beat of 19.54%.

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