MetLife Earnings Increase 9% Year Over Year, But Is It A Buy?

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 |  About: MetLife, Inc. (MET)
by: Abba's Aces

MetLife, Inc. (NYSE:MET) provides insurance, annuities, and employee benefit programs in 50 countries through its subsidiaries and affiliates. The company reported earnings after the market closed on 12Feb14 and on the surface all the results seemed excellent with the company reporting earnings of $1.37 per share (beating estimates by $0.07) on revenue of $18.38 billion (beating estimates by $950 million). What I'd like to do at this time is delve into the weeds and pick out some highlights from different portions of the report to see if the stock is worth buying at the present time.

Segment Revenue

Operating Segments (millions)

4Q13

4Q12

Y/Y

Premiums

$ 10,273

$ 10,585

-3%

Universal life and investment-type product policy fees

$ 2,317

$ 2,156

7%

Net investment income

$ 5,305

$ 5,175

3%

Other revenues

$ 487

$ 443

10%

Total

$ 18,382

$ 18,359

0%

Click to enlarge

Compared to last year total revenue was flat. Honestly there really isn't anything of interest to me in this particular portion of the earnings report. It seems like everything is chugging along at a slow rate which is great for a dividend payer.

Income Statement

Income Statement (millions)

4Q13

4Q12

Y/Y

Total Revenue

$ 18,382

$ 18,359

0%

Policyholder benefits and claims and policyholder dividends

$ 10,342

$ 10,704

-3%

Interest credited to policyholder account balances

$ 1,468

$ 1,589

-8%

Capitalization of DAC

$ (1,165)

$ (1,308)

11%

Amortization of DAC and VOBA

$ 983

$ 946

4%

Amortization of negative VOBA

$ (156)

$ (99)

58%

Interest expense on debt

$ 296

$ 292

1%

Other expenses

$ 4,483

$ 4,266

5%

Operating earnings before provision for income tax

$ 2,131

$ 1,969

8%

Provision for income tax expense

$ 541

$ 565

-4%

Operating earnings

$ 1,590

$ 1,404

13%

Preferred stock dividends

$ 31

$ 31

0%

Operating earnings available to common shareholders

$ 1,559

$ 1,373

14%

Avg. diluted shares outstanding

1138.1

1097.5

4%

Earnings per diluted share

$ 1.37

$ 1.25

9%

Click to enlarge

Looking at the income statement at first glance is very appealing as you look at the bottom line and notice that earnings increased by 9% from last year. I'd like to sift through the income statement to see why that was the case. First thing to notice is that capitalization of deferred acquisition costs [DAC] decreased by 11%. Next thing I notice is that the amortization of negative value of business acquired increased by 58%. After taking into consideration all the operating expenses we see that earnings before tax provision increased by 8%. After taking into consideration the provision for taxes we get operating earnings which increased by 13%. Then after subtracting the payment of preferred stock dividends we get operating earnings attributable to shareholders which increased 14% from the prior year.

Conclusion

The company reported earnings which were 9% higher than the year before on flat revenue while the share price was up 38.28% in the past year excluding dividends. The increase in earnings was due primarily to better operating efficiency. The share count actually increased by 4% and actually subtracted 5% from earnings. This earning report is okay because the increase in earnings was due to cost savings, but I'd like to see if the company can improve on revenues instead. On a fundamental basis I believe this company is inexpensively valued with respect to 2015 earnings. The stock was up 0.26% the day after reporting earnings in the face of an S&P500 which gained 0.57%. With all this the company increased litigation reserves reducing earnings by $46 million which took off $0.04 per share. I'm going put the stock on the pine till I see some revenue growth.

Disclaimer: This article is meant to serve as a journal for myself as to the rationale of why I bought/sold this stock when I look back on it in the future. These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!

Disclosure: I am long MET. 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.