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Why Is MetLife (MET) Up 6% Since Last Earnings Report?

It has been about a month since the last earnings report for MetLife (MET). Shares have added about 6% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is MetLife due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

MetLife Q3 Earnings Miss Despite Rising Investment Returns

MetLife reported third-quarter 2023 adjusted operating earnings of $1.97 per share, which missed the Zacks Consensus Estimate by 1%. The bottom line, however, increased 44% year over year.

Adjusted operating revenues of MetLife amounted to $18.2 billion, which declined 22.3% year over year. However, the top line beat the consensus mark by 1.7%.

The weaker-than-expected third-quarter earnings were caused by higher net derivative losses. The negatives were partially offset by lower expenses, higher investment returns, volume growth across some segments and improved contributions from the U.S., Latin America and EMEA businesses.

Behind the Headlines

Adjusted premiums, fees and other revenues, excluding pension risk transfer (PRT), were $11.7 billion, up 8% year over year. Adjusted net investment income rose 21% year over year to $5.1 billion in the quarter under review due to high interest rates, asset growth and private equity returns.

Total expenses of $15.3 billion fell from $20.9 billion a year ago and were below our estimate of $15.9 billion due to lower policyholder benefits and claims. The adjusted expense ratio, excluding total notable items related to adjusted other expenses and PRT, increased 40 basis points (bps) year over year to 20.6%.

Net income plunged 62% year over year to $422 million and significantly missed our model estimate due to higher net derivative losses. Adjusted return on equity, excluding AOCI other than FCTA, improved 430 bps year over year to 14.9%.

Inside MetLife’s Segments

U.S.: The segment reported adjusted earnings of $980 million, which increased 30% year over year and comfortably beat our estimate in the third quarter due to higher recurring interest margins, growing volumes and favorable underwriting margins. Adjusted premiums, fees and other revenues, excluding PRT of $6.9 billion, rose 9% year over year.

Asia: Adjusted earnings in the segment amounted to $275 million, which rose 3% year over year in the quarter under review due to increased variable investment income. However, the figure missed our estimate. Adjusted premiums, fees & other revenues declined 3% year over year to $1.7 billion in the third quarter.

Latin America: Adjusted earnings of $199 million increased 25% from a year ago and beat our estimate of $162.9 million due to growing volumes and favorable underwriting. Adjusted premiums, fees & other revenues advanced 32% year over year to $1.5 million in the segment due to growing sales in Mexico and Chile.

EMEA: The segment’s adjusted earnings were $88 million, which increased 38% at a reported basis and 35% at cc year over year in the third quarter, comfortably beating our estimate on the back of higher volumes, recurring interest margins and favorable underwriting. Adjusted premiums, fees & other revenues of $588 million climbed 9% year over year due to solid sales.

MetLife Holdings: Adjusted earnings in the segment rose 78% year over year to $208 million due to increased variable investment income but missed our estimate. Adjusted premiums, fees & other revenues fell 8% year over year to $910 million in the quarter under review.

Corporate & Other: Adjusted loss of $262 million marginally widened from the prior-year quarter’s loss of $258 million.

Financial Update (as of Sep 30, 2023)

MetLife exited the third quarter with cash and cash equivalents of $14.9 billion, which decreased from $20.2 billion at 2022-end. Total assets of $652.1 billion decreased from $663.1 billion at 2022-end.

Long-term debt totaled $15.5 billion, up from $14.6 billion at the prior-year end. It also had a short-term debt of $161 million. Total equity of $25.9 billion decreased from $30.1 billion at 2022-end.

Capital Deployment Update

MetLife bought back shares worth $800 million during the third quarter and an additional $250 million in October.

Previous Outlook

Earlier, the company stated that it expects pre-tax variable investment income to be around $2 billion for 2023. Corporate & Other adjusted losses were expected within $650-$750 million for the year. The effective tax rate was projected in the range of 22-24%. MET expected its MetLife Holdings’ adjusted premiums, fees and other revenues to decline 12-14% in 2023 and then by 6-8% per annum. It had expected to generate adjusted earnings of $1-$1.2 billion in 2023 from this segment.

It stated that within three years, the company targets adjusted return on equity within 13-15%. It is expected to keep free cash flows within the 65-75% range of adjusted earnings. Further, it is aiming at a direct expense ratio of 12.6%. In the near term, MET expected its group benefits’ adjusted premiums, fees and other revenues to grow 4-6% per annum.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision.

VGM Scores

At this time, MetLife has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, MetLife has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Performance of an Industry Player

MetLife is part of the Zacks Insurance - Multi line industry. Over the past month, MGIC Investment (MTG), a stock from the same industry, has gained 2.3%. The company reported its results for the quarter ended September 2023 more than a month ago.

MGIC reported revenues of $297.2 million in the last reported quarter, representing a year-over-year change of +0.4%. EPS of $0.64 for the same period compares with $0.86 a year ago.

MGIC is expected to post earnings of $0.57 per share for the current quarter, representing a year-over-year change of -10.9%. Over the last 30 days, the Zacks Consensus Estimate remained unchanged.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #2 (Buy) for MGIC. Also, the stock has a VGM Score of D.

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