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MetLife's Rising Revenues & Streamlining Measures Aid Growth

Zacks Equity Research

MetLife, Inc. MET, which is a leading multiline insurer with presence across the globe, has been performing favorably as reflected by its growing top and bottom line. The company beat estimates in the past 12 quarters, which signifies its superior operating performance.

MetLife’s business streamlining moves have improved its profile and strengthened its capital position. Its revenues have been growing over the years and  the performance should continue on the back of expected sales growth in Asia and EMEA, rise in operating premiums, fees and other revenues in its Group Benefits segment.

MetLife is busy streamlining its business over the past few years to focus on the ones with potential for growth and in fixing or exiting businesses that do not create value. One of the most significant steps taken in this direction was the separation of its U.S. Retail business named BrightHouse Financial, completed in 2018. This business required MetLife to hold a huge capital buffer and placed it at a significant competitive disadvantage. 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.

Also, the company recently closed its UK Wealth Management business, which was suffering from low interest rates. The company sold MetLife Afore, S.A. de C.V., its pension fund management business in Mexico.

The company is also in the process of selling its underperforming Hong Kong business. The sale of these businesses will transform MetLife into a company with less volatility and more free cash flow, which should lead to higher return on equity.

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MetLife has a strong risk-based capital position, sufficient liquidity and a low debt-to-equity ratio (28% compared with the industry’s ratio of 46%). The company also manages its capital efficiently. Its free cash flow ratio rose from 26% in 2012 to average 66% in 2018. This strong free cash flow generation has enabled MetLife to repurchase more than $10 billion of common shares over the last five years and hike its dividend at a compound average growth rate of 12% since 2011.

Recently, the company increased its quarterly dividend by 4.8%. Its dividend yield of 4% is above the industry’s dividend yield of 2.4%. It has also approved a new $2-billion share repurchase authorization. The company targets to return 65-75% of earnings over a two-year period (2019-2021).

The stock of the company has rallied 7.5% year to date, compared with the industry’s gain of 0.5%.

The stock carries a Zacks Rank #3 (Hold). Some better-ranked stocks worth considering are James River Group Holdings, Ltd. JRVR, Assurant Inc. AIZ and Radian Group, Inc. RDN. While James River Group sports a Zacks Rank #1 (Strong Buy), Assurant and Radian Group carry a Zacks Rank #2 (Buy).

James River beat estimates in three of the four reported quarters with an average positive surprise of 2.62%, Assurant and Radian beat estimates in each of the four reported quarters with an average positive surprise of 21.75% and 10.10%, respectively.

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

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