MetLife (MET) Poised For Growth Despite Low Interest Rates

On May 20, 2016, we issued an updated research report on MetLife, Inc. (NYSE:MET) .

The multi line insurer’s first-quarter 2016 earnings missed the Zacks Consensus Estimate and also deteriorated year over year. The first-quarter results reflected weakness across all its geographical regions with a decline in earnings from the Americas, Asia, and Europe, the Middle East and Africa (EMEA).

MetLife maintains a diversified business mix and is one of the strongest brands in the world. Its strategic acquisitions and divestitures allow it to focus on core growth areas, which in turn, have been paving the way for long-term success.

MetLife shed its SIFI status after the District of Columbia federal judge Rosemary Collyer mentioned that the insurer is not "too big to fail" and ruled that it should not be subject to stricter regulation. Thus, the company no longer remains within the purview of the Federal Reserve for tighter monitoring or to hold back more capital which restricts its capital deployment.

In Jan 2016, the company announced its decision, to separate its U.S. Retail business. This was a strategic effort on the company’s part to reduce burden related to capital regulation. After the divestiture, the U.S. Retail segment will act only as a manufacturer of annuity and life insurance products and not a distributor.

Also, the company announced the sale of its U.S. retail life agency force unit, MetLife Premier Client Group (“MPCG”), to Massachusetts Mutual Life Insurance Company. We expect the reorganized company to be leaner and more focused.

Following its exit from proprietary retail distribution in the U.S., the company anticipates run rate expense savings of about $250 million per year after tax, which would be split evenly between the separated business and the rest of MetLife.

MetLife boasts of a strong risk-based capital position, ample liquidity, a low debt ratio and efficient capital management. Further, the company hiked its dividend by about 6.7% in Apr 2016. Its current dividend yield stands at 3.59%, much higher than the industry yield of 1.35%.

However, exposure to low interest rate environment will continue to weigh on the spreads and MetLife’s risk-adjusted capitalization. Moreover, the company witnessed a significant decline in its variable investment income during the first quarter owing to weak hedge fund performance. In addition, stiff competition remains a headwind.

Zacks Rank and Stocks to Consider

Currently MetLife carries a Zacks Rank #3 (Hold). Some better-ranked stocks are FBL Financial Group Inc. (NYSE:FFG) , Swiss Re Ltd. (OTC:SSREY) and James River Group Holdings, Ltd. (NASDAQ:JRVR) . Each of these stocks holds a Zacks Rank #2 (Buy).

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