BUSINESS
MetLife, Inc., a financial services company, provides insurance, annuities, employee benefits, and asset management services worldwide. It operates through five segments: U.S.; Asia; Latin America; Europe, the Middle East and Africa; and MetLife Holdings. The company offers life, dental, group short-and long-term disability, individual disability, pet insurance, accidental death and dismemberment, vision, and accident and health coverages, as well as prepaid legal plans; administrative services-only arrangements to employers; and general and separate account, and synthetic guaranteed interest contracts, as well as private floating rate funding agreements.
INVESTMENT RATING
With future capital returns forecasted to be above the cost of capital, MET is expected to continue to be a major Value Builder.
Metlife has a current Value Trend Rating of C (High Neutral).
This rating combines inconsistent signals from two proprietary PTR measures of a stock’s attractiveness. Metlife has a neutral Appreciation Score of 40 but a very high Power Rating of 85, resulting in the High Neutral Value Trend Rating.
Metlife’s stock is selling at targeted value. The current stock price of $72.40 compares to targeted value 12 months forward of $73.
This neutral appreciation potential results in an appreciation score of 40 (60% of the universe has greater appreciation potential.)
Metlife has a Power Rating of 85. (MET’s very high Power Rating indicates that it has a higher likelihood of achieving favorable investment performance over the near to intermediate term than all but 15% of companies in the universe.)
Factors contributing to this very high Power Rating include: the Life Insurance comparison group is in an extremely strong phase currently; recent price action has been favorable; and earnings estimate behavior for MET has been slightly favorable recently.
INVESTMENT PROFILE
Metlife’s financial strength is average. Financial strength rating is 56.
Relative to the S&P 500 Composite, Metlife Inc. has neutral Growth/Value characteristics; its appeal is likely to be to Income-oriented investors; the perception is that MET is normal risk. High expected growth is a positive for Metlife. Low historical growth is a relative weakness for Metlife. Metlife’s valuation is low: high dividend yield, low P/E ratio, and low price/book ratio. MET has high market capitalization.
CURRENT SIGNALS
Metlife’s current operations are eroding. Return on equity is falling, reflecting: falling asset utilization; declining pretax margin; falling tax keep rate; and falling leverage.
Metlife’s current technical position is very strong. The stock price is in a 10.3 month up move. The stock has appreciated 44.2% from its prior low. The stock price is above its 200 day moving average which is in an uptrend.
ALERTS
Recent minimal negative changes in fundamentals have affected Metlife Inc. (NYSE: MET): significant quarterly earnings deceleration occurred.
The stock is currently rated C.
Metlife Inc. (NYSE: MET) stock closed at $72.40 on 3/19/24 after a slight decline of -0.2%. NORMAL trading volume accompanied the decline. The stock has risen 1.0% during the last week and has been strong relative to the market over the last nine months.
CASH FLOW
In 2023, Metlife generated a slight increase in cash of +$3,100 million (+9%). Sources of cash were slightly larger than uses. Cash generated from 2023 EBITDA totaled +$3,941 million. Non-operating uses consumed -$24 million (-1% of EBITDA). Cash taxes contributed +$42 million (+1% of EBITDA). Re-investment in the business amounted to -$2,049 million (-52% of EBITDA). On a net basis, debt investors removed -$207 million (-5% of EBITDA) while equity investors furnished +$1,397 million (+35% of EBITDA).
Metlife’s Non-operating Income, %EBITDA has enjoyed a volatile overall uptrend over the period. This improvement was accompanied by stability for the Metlife Peer Group. (Since 2021 Non-operating Income, %EBITDA has experienced a very sharp decline.) In most years, Metlife was in the top quartile and second quartile. Currently, Metlife is at the upper quartile at -1% of EBITDA (-$24 million).
Metlife’s Cash Taxes, %EBITDA experienced a volatile overall downtrend over the period. This downtrend was accompanied by stability for the Metlife Peer Group. In most years, Metlife was in the top quartile and lower quartile. Currently, Metlife is upper quartile at +1% of EBITDA (+$42 million).
Metlife’s Business Re-investment, %EBITDA has enjoyed a volatile overall uptrend over the period. This improvement was accompanied by an opposite trend for the Metlife Peer Group. In most years, Metlife was in the top quartile and third quartile. Currently, Metlife is substantially below median at -52% of EBITDA (-$2,049 million).
Metlife’s Debt Investors, %EBITDA has experienced a volatile overall uptrend over the period. This improvement was accompanied by a similar trend for the Metlife Peer Group. (Since 2021 Debt Investors, %EBITDA has accelerated very sharply.) In most years, Metlife was in the third quartile and lower quartile. Currently, Metlife is below median at -5% of EBITDA (-$207 million).
Metlife’s Equity Investors, %EBITDA has suffered a volatile overall downtrend over the period. This downtrend was accompanied by stability for the Metlife Peer Group. In most years, Metlife was in the top quartile and lower quartile. Currently, Metlife is at the upper quartile at +35% of EBITDA (+$1,397 million).
Metlife’s Change in Cash, %EBITDA has experienced a volatile overall downtrend over the period. This downtrend was accompanied by an opposite trend for the Metlife Peer Group. (Since 2021 Change in Cash, %EBITDA has experienced a very sharp recovery.) In most years, Metlife was in the second quartile and top quartile. Currently, Metlife is above median at +79% of EBITDA (+$3,100 million).
Metlife’s Cash, %Revenue has exhibited little to no overall change over the period. This stability was accompanied by an uptrend for the Metlife Peer Group. In most years, Metlife was in the second quartile and third quartile. Currently, Metlife is slightly below median at +54%.
PROFITABILITY
Metlife’s return on equity has improved significantly since 2014. The current level of 5.3% is 4.29X the low for the period and is -41.7% from the high.
A major analytical focus for MET is a very strong negative trend in pretax operating return significantly offset by a very strong positive trend in non-operating factors.
The productivity of Metlife’s assets rose over the full period 2014-2023: asset turnover has enjoyed a strong overall uptrend.
Reinforcing this trend, pretax margin enjoyed a volatile overall uptrend even as it experienced a very sharp decline after the 2019 high.
Non-operating factors (income taxes and financial leverage) had a very significant positive influence on return on equity.
Metlife’s return on equity is lower quartile (5.3%) for the four quarters ended December, 2023.
Operating performance (pretax return on assets) is lower quartile (0.3%) reflecting asset turnover that is at median (0.10X) and lower quartile pretax margin (3.2%).
Tax “keep” rate (income tax management) is lower quartile (73.0%) resulting in after tax return on assets that is lower quartile.
Financial leverage (leverage) is at the upper quartile (22.91X).
GROWTH RATES
There are no significant differences between Metlife’s longer term growth and growth in recent years.
Metlife’s historical income statement growth and balance sheet growth have diverged. Revenue growth has paralleled asset growth; earnings growth has exceeded equity growth.
Annual revenue growth has been 4.7% per year.
Total asset growth has been 2.2% per year.
Annual E.P.S. growth has been 4.0% per year.
Equity growth has been -4.6% per year.
Metlife’s consensus growth rate forecast (average of Wall Street analysts) is 14.5% — substantially above the average of the historical growth measures.
Relative to the Metlife Peer Group, Metlife’s historical growth measures are erratic. Revenue growth (4.7%) has been at the upper quartile. Total asset growth (2.2%) has been substantially below median. E.P.S. growth (4.0%) has been below median. Equity growth (-4.6%) has been lower quartile.
Consensus growth forecast (14.5%) is upper quartile.
PRICE HISTORY
Over the full time period, Metlife’s stock price performance has been below market. Between May, 2013 and March, 2024, Metlife’s stock price rose +64%; relative to the market, this was a -48% loss. Significant price move during the period: 1) March, 2020 – November, 2022: +151%.
TOTAL INVESTMENT RETURNS
Current annual total return performance of 0.6% is below median relative to the S&P 500 Composite.
In addition to being below median relative to S&P 500 Composite, current annual total return performance through February, 2024 of 0.6% is lower quartile relative to Metlife Inc. Peer Group.
Current 5-year total return performance of 12.9% is above median relative to the S&P 500 Composite.
Through February, 2024, with above median current 5-year total return of 12.9% relative to S&P 500 Composite, Metlife’s total return performance is above median relative to Metlife Inc. Peer Group.
VALUATION BENCHMARKS
Relative to S&P 500 Composite, MET’s overall valuation is low. The highest factor, the price/earnings ratio, is upper quartile. Ratio of enterprise value/earnings before interest and taxes is above median. Price/equity ratio is lower quartile. Ratio of enterprise value/revenue is lower quartile. The lowest factor, the ratio of enterprise value/assets, is lower quartile.
Relative to Metlife Peer Group, MET’s overall valuation is normal. The highest factor, the price/earnings ratio, is upper quartile. Price/equity ratio is at the upper quartile. Ratio of enterprise value/earnings before interest and taxes is at median. Ratio of enterprise value/assets is at the lower quartile. The lowest factor, the ratio of enterprise value/revenue, is lower quartile.
Metlife has a major value gap compared to the median. For MET to hit median valuation, its current ratio of enterprise value/revenue would have to rise from the current level of 1.09X to 1.85X. If MET’s ratio of enterprise value/revenue were to rise to 1.85X, its stock price would be higher by $70 to $142.
For MET to achieve upper quartile valuation relative to the Metlife Peer Group, its current ratio of enterprise value/revenue would have to rise from the current level of 1.09X to 3.36X. If MET’s ratio of enterprise value/revenue were to rise to 3.36X, its stock price would increase by $210 from the current level of $72.
VALUE TARGETS
With future capital returns forecasted to be above the cost of capital, MET is expected to continue to be a major Value Builder.
Metlife’s current Price Target of $81 represents a +12% change from the current price of $72.40.
This neutral appreciation potential results in an appreciation score of 40 (60% of the universe has greater appreciation potential.)
With this neutral Appreciation Score of 40, the high Power Rating of 85 results in an Value Trend Rating of C.
Metlife’s current Price Target is $81 (+7% from the 2023 Target of $76 and +12% from the 03/19/24 price of $72.40). This slight rise in the Target is the result of a +4% increase in the equity base and a +3% increase in the price/equity multiple. The forecasted increase in cost of equity has a very large negative impact on the price/equity multiple and the forecasted decline in growth has a very large negative impact as well. More than offsetting these Drivers, the forecasted increase in return on equity has a huge positive impact.
PTR’s return on equity forecast is 28.5% — substantially above our recent forecasts. Forecasted return on equity enjoyed a dramatic, erratic increase between 2015 and 2023. The current forecast is significantly above the 2016 low of 5%.
PTR’s growth forecast is 0.0% — below our recent forecasts. Forecasted growth enjoyed a dramatic, steady increase between 2015 and 2023. The current forecast is significantly below the 2022 peak of 11%.
PTR’s cost of equity forecast is 14.1% — above recent levels. Forecasted cost of equity suffered a dramatic, erratic increase between 2015 and 2023. The current forecast is well above the 2016 low of 4.7%.
At Metlife’s current price of $72.40, investors are placing a positive value of $4 on its future investments. This view is consistent with the company’s most recent performance that reflected a growth rate of 8.0% per year, and a return on equity of 8.7% versus a cost of equity of 6.1%.
PTR’s 2025 Price Target of $81 is based on these forecasts and reflects an estimated value of existing assets of $81 and a value of future investments of $0.
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