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Here is a look at how MetLife, Inc. (NYSE:MET) fares in ModernGraham's opinion, based on an updated and modernized version of Benjamin Graham's requirements of defensive and enterprising investors from The Intelligent Investor:

Defensive and Enterprising Investor Tests (What is the significance of these tests, and what is PEmg ratio?):

Defensive Investor - must pass all 6 of the following tests: Score = 4/6

  1. Adequate Size of Enterprise - market capitalization of at least $2 billion - PASS
  2. Earnings Stability - positive earnings per share for at least 10 straight years - FAIL
  3. Dividend Record - has paid a dividend for at least 10 straight years - PASS
  4. Earnings Growth - earnings per share has increased by at least 1/3 over the last 10 years using 3-year averages at beginning and end of period - FAIL
  5. Moderate PEmg ratio - PEmg is less than 20 - PASS
  6. Moderate Price to Assets - PB ratio is less than 2.5 or PB x PEmg is less than 50 - PASS

Enterprising Investor - must pass all 3 of the following tests or be suitable for a defensive investor: Score = 2/3

  1. Earnings Stability - positive earnings per share for at least 5 years - FAIL
  2. Dividend Record - currently pays a dividend - PASS
  3. Earnings growth - EPSmg greater than 5 years ago - PASS

Valuation Summary (Explanation of the ModernGraham Valuation Model)

Key Data:

MG Value$55.52
MG OpinionFairly Valued
Value Based on 3% Growth$41.63
Value Based on 0% Growth$24.41
Market Implied Growth Rate4.97%
PEmg18.44
PB Ratio0.97

Balance Sheet - 9/30/2013

Total Debt$21,445,000,000
Total Assets$822,643,000,000
Intangible Assets$9,509,000,000
Total Liabilities$761,716,000,000
Outstanding Shares1,120,850,000

Earnings Per Share

2013 (estimate)$3.38
2012$1.08
2011$6.27
2010$2.99
2009-$2.94
2008$4.54
2007$5.44
2006$3.85
2005$4.16
2004$3.59
2003$2.57

Earnings Per Share - ModernGraham

2013 (estimate)$2.87
2012$2.54
2011$3.27
2010$2.10
2009$2.11
2008$4.53

Conclusion:

MetLife, Inc. would be suitable for the Enterprising Investor if it had not posted a loss in 2009. The company has demonstrated at least some growth in its earnings over the five-year period, and pays a dividend, but Enterprising Investors require stable earnings for at least five years. Note, however, that assuming all other things stay the same, next year the company will have achieved the requisite number of stable earnings years to qualify for the Enterprising Investor.

Defensive Investors are not interested in the company because of the lack of earnings stability or earnings growth over the ten year period. As a result, Enterprising Investors should keep an eye on MetLife while researching other opportunities this year, perhaps beginning with a review of ModernGraham's analysis of AFLAC Incorporated (NYSE:AFL). From a valuation side of things, MetLife has grown its EPSmg (normalized earnings) from $2.11 in 2009 to an estimated $2.87 for 2013. The market is currently implying a growth rate estimate of 4.97%, and the historically demonstrated growth supports the market's estimate. Therefore the company would appear to be fairly valued presently.

What do you think? What value do you place on MetLife Inc.? Is the company suitable only for Enterprising Investors? Is there a company you like better?

Disclosure: The author did not hold a position in MetLife Inc. (MET) or any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.

Source: ModernGraham Valuation Of MetLife, Inc.