Global multi-line insurer MetLife Inc. (MET) is scheduled to release its second-quarter 2014 financial results after the closing bell on Jul 30.
In the last quarter, the company delivered a negative earnings surprise of 2.1%, although the four-quarter trailing average beat is pegged at 2.5%. Let us see how things are shaping up for this announcement.
Earnings Whispers
Our proven model shows that MetLife is not likely to beat earnings as it lacks the required combination of two key components.
Zacks ESP: MetLife has a negative Zacks ESP. That is because Expected Surprise Prediction or Earnings ESP, which represents the difference between the Most Accurate estimate of $1.40 per share and the Zacks Consensus Estimate of $1.41, is -0.71%.
Zacks Rank: MetLife’s Zacks Rank #2 (Buy) increases the predictive power of ESP. However, we need to have a positive ESP to be confident about an earnings beat.
Note that stocks with Zacks Rank #1, 2 and 3 have significantly higher chances of beating earnings. Sell-rated stocks (#4 and 5) are kept under the radar and are never considered going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
The combination of MetLife’s Zacks Rank #2 and -0.71% ESP makes surprise prediction difficult.
Factors Seeking Attention
MetLife benefits from a sturdy capital position, which is cushioned by a diversified portfolio and a leading brand. Moreover, the $1.2 billion of debt reduction until May 2014 has improved its financial leverage, further strengthening capital and paving the way for resumption of share buybacks, as announced last month. This comes despite the risk of being acknowledged as a systemically important financial institution (SIFI), although any acquisitions are unlikely in near future.
Going ahead, consistent focus on international growth, particularly in emerging economies, along with improved underwriting and shifting away from capital-intensive productsshould enhance operating leverage. As well, the latest strategic acquisitions and alliances are projected to be accretive to earnings and asset-base, thereby increasing MetLife’s potential to outperform the peer group
Nevertheless, challenging interest rates, currency fluctuations, stiff competition and regulatory challenges pose direct threats to MetLife’s growth profile. To be baptized as a non-bank SIFI will further cuff the company with stringent capital, liquidity and leverage compliances.
MetLife also expects to incur a loss of $350 to $390 million from the divestment of MetLife Assurance Ltd., which if reported in second quarter results may limit growth of earnings and cash flows. Hence, at present we prefer to be at the periphery regarding the stock.
Other Stocks to Consider
Here are some other companies you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:
Arch Capital Group Ltd. (ACGL) has Earnings ESP of +5.10% and a Zacks Rank #2 (Buy).
Everest Re Group Ltd. (RE) has Earnings ESP of +4.82% and a Zacks Rank #2.
United Insurance Holdings Corp. (UIHC) has Earnings ESP of +2.33% and a Zacks Rank #2.
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