MetLife (MET)

fall

Key Statistics

Enterprise Value = $46.727 billion

Operating Income = $5.65 billion

EV/Operating Income = 8.27x

Price/Revenue = .70x

Earnings Yield = 11%

Debt/Equity = 36%

The Company

Met Life is a massive global insurance firm. Their $457 billion bond portfolio makes them one of the biggest institutional investors in the United States. Their business spans the globe with operations in the United States, Asia, EMEA, and Latin America.

A major focus for MetLife is group insurance for large corporations. Another important segment is pension risk transfer when MetLife assumes the pension risk of another company. Another segment is structured settlement, in which MetLife will take on large class action legal claims.

Like Unum Group, shares have languished due to concerns about its long-term care insurance reserves. In other words, with people living longer and medical care costs rising, the market is worried that MetLife doesn’t have enough capital set aside to deal with these concerns. These concerns have caused many insurance names to lag the S&P 500 in the past year and MetLife has not been immune to the pain In the last year, the stock is down 8.39% while the S&P 500 is up 15.67%.

My Take

Cheap insurance stocks are a large segment of my portfolio. I currently own Aflac, Unum Group, Reinsurance Group of America, and MetLife. I like insurance for several reasons: it is boring, it is profitable, and beaten up insurance companies almost always tend to recover unless there is a black swan event or they have been playing it fast and loose with risk management.

As for the long-term care anxieties, I have no idea if MetLife has sufficient capital set aside. What I do know is that long-term care represents only 15% of MetLife’s business and it looks to me like the concerns are already built into the stock price.

Despite the pressures on the stock and worries about long-term care, revenues and profits are up over the last year. In the most recent quarter, year/year revenues are up 38.23% and EPS is up 3.75%.

Met Life is a high-quality firm. Their Piotroski F-Score is currently an excellent 7. Their debt/equity ratio is currently 36%, implying that they have a relatively safe balance sheet.

My main attraction to Met Life is its high level of shareholder yield. In the last year, MetLife has bought back 5% of the outstanding shares and delivers a dividend yield of 3.60%. The share buybacks show no signs of letting up. In May, the company announced a $1.5 billion share buyback.

With most of my picks, I buy ugly situations and wait for significant multiple appreciation once the concerns fade away. I am looking for gains of 50-100%. With Met Life, I’m not expecting those kinds of gains. While moderate multiple appreciate is possible, my expectation is that MetLife has a low probability of blowing up and, in the meantime, it will continue to aggressively return capital to shareholders and ought to deliver an attractive rate of return.

PLEASE NOTE: The information provided on this site is not financial advice and it is for informational and discussion purposes only. Do your own homework. Full disclosure: my current holdings.  Read the full disclaimer.