New Life Ahead For MetLife - Barron's

Despite recent setbacks for insurer MetLife (MET), some more deserved and some less, Barron's Sandra Ward believes the company is worth a second look.

The latest mishap to hit the stock was a 15% fall in share price last week when Senate Majority Leader Harry Reid claimed a major insurance company was on the verge of bankruptcy. The senator's spokesman later said Reid had misspoken, but the damage had already been done. This came on the heels of a Fitch Ratings' sector downgrade earlier in the week, which had changed the sector outlook to Negative on concerns that insurers' capital levels might be hurt by the current financial crisis. These two events wiped away $10B of MetLife's market value.

However, the company is cash-rich and has major growth potential, positioned as it is for access to domestic baby boomers and poised to capture growing international markets. By 2013, MetLife's international business is expected to comprise 25% of earnings, up from 14% in H1 and from 6% in 2004. MetLife is also likely to benefit from AIG's (AIG) woes and is expected to be an aggressive bidder for AIG's life-insurance businesses.

These strengths are available to investors at bargain prices. Priced at around $45, MetLife shares trade at around 6.9 times 2009 consensus earnings estimates of $6.53/share. That's the lowest multiple for the stock since it went public in 2000, and is well below the company's average of 11.6 times earnings. MetLife is also trading near its roughly $42/share book value, about the lowest it has ever traded on that basis. Todd Williams, a portfolio manager at Westwood Management, says "it's extremely cheap and its earnings potential is stronger than it's ever been in the past."

• Colin Devine, of Citigroup Global Markets, believes the firm's "diversified business mix, strong capital position and conservative investment portfolio should allow it to produce stable, predictable earnings while delivering steady improvement in return on equity up to the 15% level by year end 2010." His one-year price target is $70/share.
• Other analysts believe that if MetLife can reach the expected 15% return on equity, it could trade at $100/share.

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• MetLife (MET): Q2 EPS of $1.30 misses by $0.21. Revenue of $13.72B vs. $13.89B. [PR]
• Jeffrey Schuman, of Keefe, Bruyette & Woods, recently upgraded MetLife to Outperform from Perform, calling MetLife's capital and liquidity profile "very solid relative to this week's dramatic sell-off."

Comments

[Mr Ed:]

Dear Harry
Thank you for creating a buying opportunity in Met Life, a first class company. Kind of sad a person in his position has so little market knowledge. You get what you pay for, congress has a 9% approval of the American Public and this guy is the top dog.

2008 Oct 05 05:59 PM

[kurt walter:]

What exactly is in the MET portfolio? Mortgage crap? Credit swaps? Is MET another AIG? I need to see what MET owns before I think about investing in that insurance company. I don't trust any of them.

2008 Oct 06 08:38 PM

[Nikola:]

Well, in light of today's news, maybe Harry hadn't misspoken.

2008 Oct 08 07:03 AM