Global multi-line insurer – MetLife Inc. (MET) is scheduled to release its fourth-quarter 2014 financial results after the closing bell on Feb 11, 2015.
In the last quarter, the company delivered a positive earnings surprise of 15.9%, while the four-quarter trailing average beat is pegged at 4.4%. 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 $1.36 and the Zacks Consensus Estimate of $1.38, is -1.45%.
Zacks Rank: MetLife’s Zacks Rank #3 (Hold) increases the predictive power of ESP. However, we need a positive ESP to be confident of an earnings beat. Hence, the combination of MetLife's Zacks Rank #3 and an ESP of -1.45% deters us from making a conclusive outcome.
Conversely, Sell-rated stocks (#4 and 5) should never be considered going into an earnings announcement, especially when the company is seeing negative estimate revisions.
Factors that Warrant Attention
MetLife’s investment portfolio has been marred by persistent pressure on spreads and investment yields from low interest rates. These factors also weigh on the annuity results.Additionally, loweryields from alternative investments as well asunfavorable impact of mortality morbidity and claims experience have been dragging operating earnings moderately.
Alongside, intense competition and currency fluctuations pressurize earnings growth, reflected in a tepid growth guidance. While a weak yen is likely to soften earnings in Asia, the current low interest rate environment, which is expected to continue over the next couple of years, and inflationary pressure prompted management to project modest investment losses in 2014 and beyond.
Furthermore, regulatory amendments in various global jurisdictions directly raise financial risks, like the enactment of a tax reform bill in Chile in Sep 2014 that led to a hiked tax rate, while also compelling MetLife to incur one-time charges worth $41 million in third-quarter 2014. Higher interest charges in Chile also dragged earnings partly in the first nine months of 2014.
While MetLife is aggressively defending its position, the risk of being acknowledged as a systemically important financial institution (SIFI) is expected to put stringent capital, liquidity and leverage compliances on the company.
Nonetheless, MetLife’s capital remains sturdy, which is also reflected by an improved financial leverage and operating cash flow. These factors also facilitate efficient capital deployment. We expect earnings per share to benefit from the share buyback program resumed in Jun 2014.
Furthermore, focused global expansion through acquisitions and strategic alliances along with a diversified portfolio and prudent underwriting has been enhancing MetLife’s brand value and asset base. The company is also on track to achieve its targeted near-term cost synergies.
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:
Assured Guaranty Ltd. (AGO) has an Earnings ESP of +13% and a Zacks Rank #1 (Strong Buy).
HCI Group Inc. (HCI) has an Earnings ESP of +4.4% and a Zacks Rank #1.
Radian Group Inc. (RDN) has an Earnings ESP of +13.9% and a Zacks Rank #2 (Buy).
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