While MetLife (MET -0.4%) and Prudential Financial (PRU -0.1%) trade at the same price/equity ratios, Jefferies analyst Suneet Kamath said he favors MET (Buy) over PRU (Underperform) based on MET's "modestly stronger earnings growth, higher free cash flow conversion, and greater deployment certainty."
The equal P/E ratios suggest that the market sees their outlooks as similar. "We disagree," Kamath said in a note to clients. He expects MetLife's (NYSE:MET) earnings to outpace Prudential's (NYSE:PRU) by ~100 basis points, based on Jefferies' updated 2023-26 forecasts. "We note that MET has not used asset sales of low growth businesses to improve its growth outlook to the same extent that PRU has," he wrote.
Kamath also expects MET to put most of its free cash flow into capital return, "which has lower execution risk than M&A." For PRU to meet its objective of boosting earnings contribution from growth businesses to 30%+ from 18%, it will need to acquire ~$1B+ in "growthy" earnings, he estimated. And boosting the proportion of earnings coming from its growth businesses by reducing its non-growth businesses would likely dilute EPS.
Kamath pared his 2022 EPS estimate for MetLife (MET) to $7.05 from $7.20 and for Prudential (PRU) to $11.85 from $12.45 due to COVID pressure. For 2024 EPS, he increased the estimate for MET to $8.15 from $8.10 and trimmed the estimate for PRU to $13.05 from $13.50.
He increased his price target for MET to $78 from $74 and for PRU to $96 from $93.
Compare MET, PRU and peers' key stats here.