MetLife Inc. (MET) offers a diversified business mix. The company remains focused on inorganic growth, and also remains successful in maintaining its operating leverage and a strong capital position.
However, we are retaining our "Neutral" recommendation on the company. Positives are being offset somewhat by its significant exposure to commercial mortgage-backed securities (CMBS), Alt-A residential mortgage-backed securities (RMBS) and subprime RMBS, as well as the current interest rate environment and rising trend in benefits and claims.
MetLife maintains a diversified business mix. The company consistently re-aligns its business portfolio to cater to market demand. Meanwhile, the company is also strategically heading toward divesting its problem operations in Japan and Taiwan, where catastrophes and stringent regulations pose ample operational and financial risks.
MetLife has been successful in maintaining its operating leverage over the last couple of years. In addition, the company is focusing and taking specific initiatives to bring pension-related expenses to a more normal level in 2011.
The ALICO acquisition has increased MetLife’s investment portfolio by about 25%, which expands its global investment market reach and also accelerates its long-term global growth strategy.
MetLife has a strong capital position. In June 2011, MetLife approved about $1.5 billion in policy dividends to eligible life insurance policyholders for 2011, reflecting its financial stability.
On the flip side, the interest rate environment will continue to put pressure on the spreads. Also, MetLife continues to be pressured by a rising trend in benefits and claims that puts additional strain on the expenses and bottom line. On account of this, total expenses increased substantially by 21.1% year over year during the first quarter of 2011.
MetLife’s first quarter earnings surpassed the Zacks Consensus Estimate, driven by growth from the international business, strong underwriting results and investment income. However,decreased U.S. premiums, higher expenses and swollen derivative losses were the downside.
Management expects that the second quarter 2011 operating earnings will be impacted by $45–$65 million based on increased claims and expenses due to the Japan catastrophes. The Zacks Consensus Estimate is $1.14 per share.
MetLife also guided full year 2011 operating earnings in the range of $5.1–$5.5 billion or $4.75–$5.15 per share. The Zacks Consensus Estimate is $5.13 per share.
The quantitative Zacks #3 Rank (short-term Hold rating) for the company indicates no clear directional pressure on the stock over the near term.
Headquartered in New York, MetLife, Inc. is a leading provider of insurance and financial services to a broad spectrum of individual and institutional customers. It competes with American International Group Inc. (AIG) and Prudential Financial Inc. (PRU).
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