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Factors Likely to Shape MetLife (MET) This Earnings Season

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MetLife, Inc. (MET - Free Report) fourth-quarter 2018 earnings due on Feb 6, 2019, is expected to gain from favorable underwriting, solid volume growth, better expenses and investment margins as well as lower taxes primarily due to the U.S. tax reform.

Factors Affecting Q4 Results

MetLife’s Group Benefits business should benefit from strong growth across its business lines — Large Case, Middle Market and Small Group. Also, favorable underwriting results, particularly in non-medical health and solid expense management should aid the segment’s margins. The Zacks Consensus Estimate for adjusted earnings in the Group Benefits segment stands at $265 million.  

The Retirement and Income Solutions is expected to gain from favorable volume growth, expense margins and underwriting. Strong pension risk transfer sales should also provide a boost to the segment. The Zacks Consensus Estimate for adjusted earnings is pegged at $330 million.

At the Property and Casualty business, the quarter is expected to witness higher contribution from Auto business driven by targeted rate increases and underwriting actions to reduce loss trends. Meanwhile, MetLife’s another business line, Homeowners, is likely to have suffered from catastrophe losses. The Zacks Consensus Estimate for adjusted earnings for this segment is $103 million.

Net investment income is likely to improve backed by higher account balances and increase in interest rates. The Zacks Consensus Estimate for net investment income is pinned at $4.3 billion.

Region-wise, Asia revenues should gain from increase in Japan sales driven by foreign currency denominated products. Sales from China and Australia are also likely to contribute toward overall segment’s sales. The Zacks Consensus Estimate for net income from Asia is pegged at $343 million, down 7.5% year over year.

Higher direct marketing and group sales should provide a boost to Latin America sales. However, net income will be impacted by the tax reform.
Currently, the company is making investments in technological improvement.

It anticipates initiative costs of roughly $330 million pretax in 2018 and plans to spend $1.0 billion by 2020. These costs will put pressure on margins before generating benefits and the effect of the same will be felt in the impending quarterly results.

Shares bought back in the quarter will provide an extra cushion to the bottom line.

Earnings Surprise History

MetLife boasts an attractive earnings surprise history, having surpassed estimates in each of the trailing four quarters with an average positive surprise of 9.67%. This is depicted in the chart below:

MetLife, Inc. Price and EPS Surprise

What Does Our Model Say?

Our proven model does not conclusively show that MetLife is likely to beat on earnings in fourth-quarter 2018. This is because a stock needs to have both — a positive Earnings ESP and a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — for this to happen. That is not the case here as you will see below.

Earnings ESP: MetLife has an Earning ESP of -1.03%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: MetLife carries a Zacks Rank #3, which increases the predictive power of ESP. However its negative Earnings ESP makes our surprise prediction difficult.

Stocks That Warrant a Look

Here are some companies that you may consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Kinsale Capital Group, Inc. (KNSL - Free Report) is set to report fourth-quarter 2018 results on Feb 21. The company has an Earnings ESP of +9.76% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Radian Group Inc. (RDN - Free Report) has an Earnings ESP of +3.03% and a Zacks Rank of 1. The company is set to release fourth-quarter earnings on Feb 8.

Lincoln National Corp (LNC - Free Report) has an Earnings ESP of +0.45% and a Zacks Rank #3. The company is set to report fourth-quarter earnings results on Feb 6.

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