MetLife: A Capital Return Story

Dec. 28, 2020 2:18 PM ETMetLife, Inc. (MET)16 Comments
WG Investment Research profile picture
WG Investment Research


  • MetLife's stock has significantly underperformed the broader market in 2020.
  • The company's recent operating results (and management commentary) prove that the investment thesis remains intact. Moreover, MetLife has a real capital return story to tell.
  • MetLife is well-positioned for 2021 and beyond. As such, we plan to stay long the stock.

MetLife's (NYSE:MET) stock price has recovered lately but shares are still significantly underperforming the broader market on a YTD basis.

ChartData by YCharts

I believe the pullback in MET shares should be viewed as a great long-term investment opportunity because, in my opinion, this global insurer is well-positioned for the years ahead. And the recent earnings results and announced buyback program helps the bull case for MetLife as we look into 2021.

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The Latest, Some Positive Takeaways

MetLife recently reported Q3 2020 results that beat the consensus top- and bottom-line estimates. The company reported adjusted EPS of $1.73 (beat by $0.15) on revenue of $16.5 billion (beat by $500 million), which were solid results in this challenging environment.

Source: Q3 2020 Earnings Slides

The highlights:

  • Premium, fees, and other revenue were down 6% YoY, mainly driven by broader market headwinds (i.e., COVID environment)
  • Net interest income rose 2% (to $4.7 billion) largely driven by higher private equity returns
  • Adjusted book value per share came in at $53.10 (compared to $52.27 at Q2 2020)

The strong operating performance was mainly due to two factors: better-than-expected variable investment income ("VII") results and solid expense management.

Source: Q3 2020 Earnings Slides

As shown, MetLife's private equity positions were the real growth drivers but hedge funds also had a positive impact. And more importantly, management expects for VII to remain strong through the end of the year, although at levels consistent with the three quarters before Q2 2020 (~$300 million level).

From an expense management standpoint, MetLife continues to show progress toward management's long-term goal of eliminating unnecessary costs.

Source: Q3 2020 Earnings Slides

The direct expense ratio is trending in one direction, i.e., down. The impressive Q3 2020 ratio is well-below expectations and I believe shows just how impactful expense management can be

ChartData by YCharts

ChartData by YCharts

This article was written by

WG Investment Research profile picture
Our President and CIO is a CPA with experience in public accounting and the financial services industry. He earned his Master of Accountancy degree in 2008 and his B.S. in Business Management in 2007. He is also a Level III CFA candidate. He has been intrigued by the market from the start. Over the years, he has learned that long-term investing is a discipline that, if followed, will help contribute to building lasting wealth. As such, most of our articles will be about the investments that we plan to hold for at least 3 to 5 years, as long as the company's story does not change. As a Seeking Alpha contributor, our main goal is to write about the companies that are key to our portfolio with the hope of promoting discussion (for or against the investment) from others within the SA community.Please visit our website for more information about W.G. Investment Research LLC.

Disclosure: I am/we are 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.

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