MetLife, Inc - Performance In The Short Term Vs. The Long Term

| About: MetLife, Inc. (MET)

Insurance companies are recovering from the financial crisis of 2008. The financial crisis led many insurance companies to bankruptcy. The reason behind the crisis was that before the financial crisis began most insurance companies un-hedged and under capitalized insurance on securitized debt, much of it tied to mortgage values. Normally an insurance company curtails some of the risk by taking out insurance with another company. But some big players neglected to do that because they never expected the securities to turn toxic, which they did in 2008. During the recovery process, Hurricane Sandy hit in 2012, resulting in heavy losses for insurance companies as well. Despite last year's catastrophe, analysts believe there will be slow and unsteady growth in the insurance industry.

About the Company

MetLife, Inc. (NYSE:MET) is the holding corporation for the Metropolitan Life Insurance Company. MetLife is among the largest global providers of insurance, annuities, and employee benefit programs, with 90 million customers in over 60 countries including the United States, Japan, Latin America, the Middle East, Asia, and Europe. The company operates in segments including retail, group voluntary and work site benefits, and corporate benefit funding.

Historic Price performance

Source: ycharts

The above chart shows the historic stock price performance of MetLife compared with its competitors including American International Group (NYSE:AIG) and Prudential Financial (NYSE:PRU), since December 2012. You can see that the company's stock performance was not up to the mark as compared with its competitors. The stock price underperformed compared with its competitors, with a price appreciation of 32.95 percent over the period. The rise in stock price reflects the analysts' expectations of the recovering insurance industry. It is unfair to judge the company's performance and predict outlook based just on its historic price performance because sometimes stock prices fluctuate based on speculations and rumors.

Source: Morningstar

The above graph indicates the trailing total returns with respect to the life insurance sector and the S&P 500 total return. You can clearly see that the company's short-term performance is quite impressive relative to the sector and the S&P 500, but the long-term performance shows a completely different picture. The long-term returns of the company were quite depressing compared with the industry and sector, as shown in the graph.

Fundamental Analysis

In order to evaluate the company's strength, the financial position of the company can give you a pretty good idea.

The above graph shows the company's total revenues along with growth, from 2008 to 2012. As you can see, there is a consistent increase in revenues until 2011, the period at which the insurance industry started recovering. A negative 5 percent drop in revenues was the result of damage done by Hurricane Sandy.

The above chart shows the company's net income and its earnings per share over a period of four years. In 2009 net income clearly reflected the effects of the financial crisis of 2008. From 2010 to 2011, the company was able to generate profits because of recovery in the industry. The decline in net income in 2012 was due to a natural disaster hitting the U.S. economy. The earnings per share dropped to 1.12 per share in 2012, from 6.29 per share in 2011.

Technical Analysis

The above graph shows the relative strength index (RSI) and moving average convergence-divergence (MACD) of the company's stock. RSI is an important indicator that compares the magnitude of recent gains to recent losses in an attempt to determine overbought and oversold conditions for the company. Technicians believe that the stock is overbought once the RSI approaches the 70 level, which means that it may be getting overvalued and is a good candidate for backing off. Similarly, if the RSI approaches 30, it indicates that the stock may be getting oversold, and therefore likely to become undervalued. In the case of MetLife, the RSI is already past 70, which means that it is more likely that the stock is overvalued. In the MACD graph, you can see two lines: orange (MACD) and red (signal). As you can see, the MACD line crosses the signal line above the zero point, which also supports the earlier evaluation that the stock is currently overpriced.


Insurance companies are highly risky companies with higher returns and vise versa. And after analyzing the company we can see that the company's performance is vastly better in the short term rather than in the long term. But technical and fundamental analysis indicates that the company's performance will improve in the short term.

Furthermore, the company stock seems to be overvalued, which means there is a bright chance that the price will pullback. So, it is in the best interest of investors to short this stock.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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