We reiterate our Neutral recommendation on
) based on robust growth in the U.S. and international businesses,
improved underwriting results, higher premiums, strong book value
growth and stable ratings. However, escalated expenses, stiff
competition and higher-than-expected derivative losses are the
MetLife reported first quarter operating earnings per share of
$1.37, ahead of both the Zacks Consensus Estimate of $1.30 and the
year-ago quarter earnings of $1.23. Operating earnings escalated
11% year over year to $1.46 billion.
MetLife maintains a diversified business mix and is one of the
strongest brands in the U.S., Mexico, Japan, Chile, Poland and
Korea based on its customer-centric business model. Moreover, the
company consistently realigns its business portfolio to cater to
MetLife is also regaining its competitive and operating
strengths by aggressively divesting its banking operations.Over the
past six months, MetLife agreed to sell MetLife Bank's deposit
General Electric Co.
) financial services unit - GE Capital, warehouse finance business
EverBank Financial Corp.
) and its reverse mortgage servicing portfolio to Nationstar
Moreover, MetLife has a strong risk-based capital position,
ample liquidity and leading market position in its core group and
individual insurance businesses. Going ahead, management projected
return on equity growth of 12-14% by 2016, while excess capital is
expected to augment to $6-7 billion by the end of 2012.
However, the current interest rate environment is affecting the
spreads and MetLife's risk-adjusted capitalization. Consequently,
the annuity operations, sales in corporate benefit funding and
investment income have moderated in the last few quarters and are
expected to weaken in the upcoming quarters.
The adverse impacts of interest rate, currency fluctuation and
credit spreads also resulted in pre-tax derivative losses of
approximately $2.0 billion in the first quarter of 2012.
Furthermore, an earnings reduction of about 20 cents per share is
estimated this year, should the ten-year Treasury bond interest
rate continue at 2.5% through 2012.
Although losses in net investment portfolio have moderated from
the peak levels during 2008 and early part of 2009, these are
expected to persistently trim profits over the near term until the
markets gain buoyancy.
MetLife continues to be pressured by a rising trend in benefits
and claims that puts additional strain on the expenses and bottom
line. Consequently, total expenses increased 6.6% year over year in
the first quarter of 2012. Meanwhile, MetLife expects to incur
costs of $90-100 million in 2013 due to the shutdown of its forward
residential mortgage business.
MetLife currently carries a Zacks #3 Rank (short-term Hold
EVERBANK FIN CP (EVER): Free Stock Analysis
GENL ELECTRIC (GE): Free Stock Analysis Report
METLIFE INC (MET): Free Stock Analysis Report
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