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MetLife, Inc.’s MET shares have jumped 12.8% in the past month, outperforming the 8.4% increase of the industry, thanks to strong international operations and disciplined capital management. The company has been gaining from economic recovery and has positioned itself for better returns for the future.
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Headquartered in New York, MetLife is an insurance-based global financial services company providing protection and investment products to a range of individual and institutional customers. In addition to offering individual insurance, annuity, and investment products, Metlife provides group insurance, retirement and savings products as well as services. MET currently has a market cap of $56.6 billion.
Can It Retain Momentum?
The answer is yes and before we get into the details, let us show you how its estimates for full-year 2021 stand. The Zacks Consensus Estimate for MetLife’s 2021 earnings is pegged at $8.45 per share, indicating a 37.2% rise from $6.16 a year ago. The company beat earnings estimates in each of the last four quarters, with an average of 43.1%. The consensus estimate for 2021 revenuesstands at $66.1 billion.
Now let’s delve into what’s driving the Zacks Rank #3 (Hold) stock.
Despite a low interest rate environment, MetLife’s net investment income surged 36% in the first nine months of 2021 from the prior-year comparable period, courtesy of a strong return of 36% from the private equity portfolio. For 2021, the company expects a variable investment income between $1.2 billion and $1.4 billion on the assumption that private equity will remain strong. The same strength is expected in 2022 as well.
MetLife has undertaken several strategies to control cost and increase efficiency. As a result, the company has achieved a 230-basis point improvement in the annual direct expense ratio from 2015 to 2020. For third-quarter 2021, MET reported a direct expense ratio of 10.9%, which improved 80 basis points (bps) year over year. Though the expense ratio for the fourth quarter is expected to witness an uptick, the company continues to anticipate the direct expense ratio to be below 12.3% in 2021 due to adverse impact from seasonal enrolment costs and the timing of certain technology investments. A decline in the metric will aid margins.
MET remains in sound financial health, with enough cash on hand and a very manageable debt-to-capitalization ratio. MetLife’s debt to capitalization of 17.6% is well below the industry average of 28.1%. The company’s solvency position looks strong, which will help it sail through the difficult operating environment.
The company has been busy streamlining its business over the years. MET continues to focus on businesses with growth potential and fix or exit those 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. The company completed the sale of MetLife Auto & Home to Farmers Insurance. Also, in June 2021, MET announced that it would divest wholly-owned subsidiaries in Poland and Greece, part of the Europe business, to NN Group for $738 million. These strategic steps will transform MetLife into a company with less volatility and more free cash flow in the long term, which, in turn, should lead to a higher return on equity.
Despite the upside potential, there are a few factors that are impeding the stock’s growth lately. The adverse impact of mortality claims and higher benefit ratio are some of the headwinds faced by the company lately. Nevertheless, we believe that a systematic and strategic plan of action will drive long-term growth.
Stocks to Consider
Some better-ranked players in the Finance sector include Ryan Specialty Group Holdings, Inc. RYAN, Houlihan Lokey, Inc. HLI, and Brown & Brown, Inc. BRO. While Ryan Specialty sports a Zacks Rank #1 (Strong Buy), Houlihan Lokey and Brown & Brown have a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Based in Chicago, IL, Ryan Specialty provides numerous specialty products and solutions for insurance brokers, agents, and others. It acts as a wholesale broker and managing underwriter to provide risk management services. Ryan Specialty’s bottom line for the next year is expected to jump 13.6% year over year to $1.22 per share. RYAN has witnessed two upward estimate revisions in the past 60 days and no movement in the opposite direction.
Houlihan Lokey — headquartered in Los Angeles, CA — provides multiple financial services to clients all over the world. Its growing footprint in Europe and Asia’s investment banking services field will help HLI boost strategic and shareholder value in the coming days. Rising average transaction fees will help HLI increase corporate finance revenues. The bottom line of Houlihan Lokey for the current year is expected to rise 42.9% year over year to $6.60 per share.
Headquartered in Daytona Beach, FL, Brown & Brown boasts an impressive growth potential driven by organic means and a prudent inorganic story. Its strategic efforts continue to drive commission and fees, and sturdy performance is boosting cash flows. Brown & Brown’s 2022 earnings per share are expected to rise 5.1% year over year to $2.27. It has witnessed one upward estimate revision in the past 30 days versus none in the opposite direction.
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