Yesterday, MetLife Inc. (MET) announced its projected operating earnings growth to be about 7% year over year in 2012 and revenues in the range of $5.1–5.6 billion or $4.80–5.20 per share based on average number of shares outstanding of about 1.07 billion. This guidance does not assume share buybacks, which is likely to perk up earnings per share.
For full year 2011, MetLife guided operating earnings of $5.2–5.3 billion or $4.83–4.93 per share, contracting from the prior estimation of the range of $5.1–5.5 billion or $4.75–5.15 per share based on average shares outstanding of about 1.068 billion.
Besides, the company projects fourth-quarter 2011 operating earnings, excluding adjustments, in the range of $1.2–1.3 billion or $1.16–1.26 per share based on average shares outstanding of about 1.067 billion. This reflects a growth of about 7% from $1.2 billion or $1.19 a share in the fourth quarter of 2010.
Management further evaluated a 5% growth in premiums, fees and other revenues, in the range of $47.3–48.6 billion, for 2012. The same revenue component shall be up 32% year over year, in $46.3–46.8 billion range in 2011, up from the previous estimation of 30% growth in the range of $45.8–47.0 billion.
Meanwhile, book value is anticipated to escalate 28% over 2010 to range within $56.15–57.25 per share in 2011.
Growth through international expansion…
The extraordinary growth in 2011 reflects the company’s major acquisition of American Life Insurance Co. (ALICO) from American International Group Inc. (AIG), in November 2010, for $16.2 billion. This asset adoption has further diversified the revenue base by product, distribution and geography as ALICO has extended MetLife’s presence in 64 countries, up from 17 previously, thereby lifting its non-US revenue share from 15% of the total to 40%.
In the first nine months of 2011 itself, MetLife’s international segment has posted earnings of $1.64 billion against $478 million in the year-ago period, primarily backed by ALICO. While some acquisition related costs should follow, overall, the deal is projected to be accretive to earnings by 40–45 cents per share in 2011.
MetLife’s total investment portfolio also escalated to $493.2 billion at the end of the third-quarter 2011, up from $383.2 billion at the end of the prior-year quarter, primarily due to the induction of ALICO. With the reduction of its debt exposure in Europe, strengthening of investment portfolio further injects confidence in the stock. Moreover, the acquisition will also likely have a positive effect on ROE by 100 basis points in 2011.
However, the macro risks related to the low interest-rate environment and catastrophes in Japan coupled with sluggish recovery in the US and Japan have remained on the surface throughout 2011 and are expected to be slight in 2012 as well.
Given the low interest rate environment, MetLife is also working toward reducing its risk on the equity-based retirement products, which is generating lower yields, and selling variable annuities vigorously. Additionally, MetLife is also creating a new global employees benefits unit.
Amid the weak macro factors, management believes that ALICO is poised to boost MetLife fundamentally by contributing to the company’s international operating earnings including international life and international accident and health.
As ALICO has amplified the company’s international presence substantially, last month, MetLife also restructured its revenue streams into three business units to capitalize on geographic differences: The Americas, Asia and EMEA (Europe, Middle East, and Africa). Earlier, the company was divided into the US and International geographical regions. Going ahead, management estimates revenue to grow by about 20% per year through 2015 in Brazil, Russia, India and China.
Aiming to return more wealth to investors…
MetLife is likely to furnish a fresh capital plan to the Federal Reserve (Fed) in January 2012, in order to hike dividends and recommence stock buyback, thereby deploying its excess capital (of about $6–7 billion according to Reuters) efficiently. This will also help the stock price. A final decision is not expected before the first quarter of 2012.
Previously, the Fed had rejected the company’s plan based on the size and scale of its bank operations. However, the company is also exploring the divestment of MetLife Bank as soon as possible, given its radical underperformance and stringent regulations attached to the banking status. Management is also undertaking this step to re-focus on its core insurance operations.
Overall, we believe MetLife should continue to benefit from its diversified business mix as well as its leading brand. The company's capital position remains one of the sturdiest in the industry and is supported by strong fundamentals.
Besides, the ALICO acquisition has already started to contribute to the company’s growth while also inflating the value of its investment portfolio. Although, a low interest rate environment along with the weak performance of MetLife Bank and U.S. auto-home is likely to impact the results in the upcoming quarters, the long run upside potential remains intact. This opinion is also in line with the Zacks Rank #3, implying a short-term Hold and long-term Neutral recommendation.
Estimate Trend Revision
Over the last 30 days, five of the 18 analysts covering the stock have raised their estimates for the fourth quarter of 2011, while one downward revision was witnessed. Currently, the Zacks Consensus Estimate for the fourth quarter is operating earnings of $1.28 per share, which would be up by 12.5% from the year-ago quarter.
The higher number of upward estimate revisions for the fourth quarter indicates a likelihood of upward pressure on the performance of the stock in the near term.
With respect to earnings surprises, the stock has been steady over the last four quarters, with all four positive surprises. The average remained positive at 5.92%.
The Zacks Consensus Estimates for full years 2011 and 2012 are currently pegged at $4.94 per share (up 12.9% over 2010) and $5.15 per share (4.1% over 2011), respectively.
On Monday, the shares of MetLife closed at $32.92, up 3.7%, on the New York Stock Exchange.
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