MetLife Inc (NYSE: MET) has been on a downward slide so far in 2018, with massive insurance losses due to massive rainstorms and flooding across the U.S. and Canada.
The company’s stock price has fallen from $54 to about $45, and is down nearly 10 percent so far this year. But analysts haven’t given up on MET — the consensus estimate among analysts who follow the insurance giant call for a one-year estimate share price of $53.
When will the New York-based insurer turn around its fortunes? The broader signs signal a green light, but money managers and analysts do see some speed bumps ahead.
[See: 7 ETFs to Buy as Interest Rates Rise.]
MET stock at a glance. For MetLife, quarterly performance has been solid, as the company reported that earnings in the second quarter increased 36 percent from the same quarter a year ago, boosted in part by a lower corporate tax rate and a pension-risk contract won from FedEx Corp. ( FDX).
The company also announced it exchanged Brighthouse Financial ( BHF) shares to retire debt. “We divested our remaining stake in Brighthouse and returned approximately $1.5 billion to shareholders through common stock repurchases and dividends,” CEO Steven A. Kandarian says in a statement. “We remain focused on improving our return on equity, maintaining strong free cash flow, meeting our expense targets and distributing capital to shareholders.”
MetLife stock offers a strong 3.7 percent dividend for income-minded investors, and a solid forward price-earnings ratio suggests the stock offers good value to investors looking for a deal.
Pros to buying MET stock. Besides the sturdy dividend payout, MetLife recently announced a $1.5 billion stock buyback, on the heels of a $2 billion repurchase program in 2017, which is almost complete, company officials say.
The shareholder friendly approach should further boost MET’s share price, as generous buybacks and dividends send a signal to investors that MetLife has their back.
“Excess capital belongs to our shareholders, and in 2017 we returned $4.6 billion to shareholders, a MetLife record, in the form of stock buybacks and dividends,” Kandarian says. “We recently increased our quarterly common stock dividend by 5 percent, and we’ve announced this new $1.5 billion share repurchase authorization.
“We are on track to return approximately $5 billion of capital to our shareholders in 2018,” Kandarian says.
Investors kicking the tires on MET stock may be coming (and hoping) for the share growth potential, but they’re staying for the solid dividend.
[See: 11 Health Care ETFs for a Heart-Healthy Portfolio.]
“The most commonly cited reason for owning MetLife is its dividend yield,” says Bernard George, a former hedge fund portfolio manager and now CEO of social stock trading platform Nvstr.com. “Users also find its valuation attractive, particularly relative to its tangible book value. They also believe interest rates will eventually rise, presumably decreasing the value of its liabilities and making them easier to fund.”
The stock grades out highly on an industry basis, as well.
“Among our beta users, MetLife is the 54th most-popular stock overall,” George says. “It’s the most popular insurance stock and 67 percent more popular than UnitedHealth Group ( UNH).”
Cons to buying MET stock. Interest rates factor into any buying decision on MET, and not always in a positive way, money managers say.
“In theory, higher interest rates will help MetLife better match future liabilities,” says James Stefurak, a financial advisor with Monarch Financial Research, in Melbourne, Florida. “But when nearly half a trillion in proprietary assets is already invested in fixed income and related investments, it’s a tricky course to navigate if interest rates rise rapidly.”
Rising interest rates could hammer the value of MetLife’s investment portfolio, especially amid elevated durations (especially with interest rate sensitivity) and lower credit quality, Stefurak says. “Additionally, riskier sectors like junk-rated debt and structured finance combine for roughly 25 percent of MetLife’s proprietary portfolio, so a credit event could have outsized consequences for the company’s stock price,” he says.
Many insurance portfolios include illiquid, esoteric investments like mortgage-backed securities, pay-in-kind bonds, securitized auto loans and pools of factored receivables. Consequently, Stefurak advises doing your homework and finding out exactly what MET is holding — and the same goes for any financial company stock portfolio purchase.
The bottom line. Overall, MetLife is a financially sound company with a stable asset value, even if you’re not sure $45 per share and up is a good investment entry point.
[See: 11 Ways to Buy Bank Stocks.]
“Considering that MetLife and the whole insurance industry is highly dependent on the level of interest rates, it hasn’t been a surprise that MetLife is facing shrinking profits as well as declining cash flow and total income over the last few years,” says Stephan Unger, assistant professor of economics at Saint Anselm College in New Hampshire.
“But due to decreasing liabilities, the company has been able to operate on a very profitable basis, as indicated by its financial ratios such as operating margin,” Unger says. “Given the current upward trend in interest rates, it is likely that operating margins for insurance companies will improve and boost profit and income going forward.”
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Pros and Cons to Buying MetLife Inc (MET) Stock originally appeared on usnews.com
