Making a Case for Purchasing Metlife

| About: MetLife, Inc. (MET)
The financial sector has been underperforming the overall market for over a year. The XLF financial sector ETF is down more than 10% since its high earlier in the year. This is a sector I am still underweight on for variety of reasons, but I think there are bargains in insurance stocks right now. One of my favorite picks in this sector is Metlife (NYSE:MET).
MetLife, Inc., through its subsidiaries, provides insurance, employee benefits, and financial services in the United States, Latin America, the Asia Pacific, Europe, the Middle East, and India. It offers group life insurance products and services as employer-paid benefits, including variable life, universal life, and term life products, as well as employee paid supplemental life products; individual life insurance products and services comprising variable life, universal life, term life, and whole life products, as well as a range of mutual funds and other securities products; and non-medical health insurance products and services, such as dental insurance, group short- and long-term disability, individual disability income, long-term care, critical illness, and accidental death and dismemberment coverages, as well as employer-sponsored auto and homeowners insurance and administrative services-only arrangements to employers.
10 reasons Metlife is undervalued at $41 a share:
  • MET is selling at eight times this year’s projected earnings and under seven times 2012’s consensus EPS. Consensus earnings predictions for 2011 and 2012 have gone up in the last two months.
  • Metlife has a solid A- rated balance sheet. It also pays a dividend of 74 cents per annum, giving it a current yield of 1.8%. This has more than tripled the dividend payout in the last decade, and given MET’s low payout ratio, the dividend should move up smartly in the future as well.
  • MET’s purchase of Alico will substantially boost Metlife’s international earnings and provides it with increased exposure to faster growing markets.
  • MET is underpriced from a historical perspective. It is selling at the bottom quarter of its five-year valuation range based on P/E and P/S.
  • Bank of America (NYSE:BAC) and Wells Fargo (NYSE:WFC) have recently left the reverse mortgage space, leaving Metlife as the #1 player providing this product. Impressive for a company that just entered this market in 2008.
  • Metlife is selling at less than 0.9 times its book value. Historically picking up strong financial stocks selling for less than book value turns out to be a winning strategy over the medium to long term.
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  • MET is sitting about 5-7% above a strong technical support level that exists between $38-39 that the stock has bounced off several times since September 2010.
  • Metlife is well positioned to ride the secular trend of more retirement investments and savings as the domestic demographic ages.
  • The disaster in Japan and the huge storms in the Midwest have initiated a negative news cycle that has hurt the stock, but should quit providing an overhang as time elapses.
  • Metlife is significantly under analysts’ price targets, selling at around $41 a share. Credit Suisse and S&P have a price target of $55 on this stock. FBR Capital is at $54. My own price target range is more normalized 10-11 times expected 2011 EPS of $5.18 or $52 to $57.
Disclosure: I might pick up MET in the next 72 hours.