MetLife Stock To Report Mixed Results In Q3?

MetLife (NYSE: MET) is scheduled to report its fiscal Q3 2021 results on Thursday, November 4. We expect MetLife to top the revenue expectations, while the earnings will likely miss the mark. The insurance giant surpassed the consensus estimates in the last quarter, with revenues increasing by 31% y-o-y to $18.5 billion. It was primarily because of a 29% y-o-y gain in net investment followed by a 5% increase in total premiums. Further, the company reported a net investment gain of $1.6 billion, as compared to the gain of $231 million in the year-ago period. In addition to the revenue growth, MET also witnessed a favorable decrease in operating expenses as a % of revenues, resulting in a significant jump in the profitability figures for the quarter – adjusted net income improved from $68 million to $3.4 billion. We expect the top-line to follow the same trend in the third quarter.

Our forecast indicates that MetLife’s valuation is $71 per share, which is 11% above the current market price of around $64. Our interactive dashboard analysis on MetLife’s Earnings Preview has more details. 

(1) Revenues expected to top the consensus estimates

MetLife’s revenues for full-year 2020 were $67.8 billion – 3% below the year-ago period. It was due to a marginal drop in total premiums, coupled with a 9% decrease in net investment income.

• MET generates close to 60% of the total revenues from premiums. Out of this, almost 80% comes from U.S. and Asia insurance businesses. While the U.S. segment reported a meager 2% growth in the year, the Asia segment was slightly down on a year-on-year basis. The revenue stream suffered due to the impact of the Covid-19 crisis, which shifted customers’ focus from long-term planning to short-term survivability. That said, the premiums improved in the first and second quarters driven by the recovery in the economy – total premiums for the first half of 2021 increased 7% y-o-y to $19.5 billion. We expect the same trend to continue in the third quarter as well.
• The company derives close to 25% of the revenues from the net investment income (NII). It declined 9% y-o-y to $17.1 billion in 2020 due to low investment yields. However, the pattern changed in the first half of 2021, with NII improving by 48% y-o-y to $10.6 billion. It was mainly due to higher investment yields driven by strong returns in the private equity portfolio and growth in invested assets. We expect the same momentum to continue in the third quarter.
• Overall, we expect MetLife’s revenues to touch $66.6 billion for FY2021.

Trefis estimates MetLife’s fiscal Q3 2021 revenues to be around $16.5 billion, slightly above the $16.3 billion consensus estimate. We expect the growth in U.S. insurance premiums and net investment income to drive the third-quarter results.

Moving forward, the investment yields are likely to improve in FY2021. However, it will likely remain below the pre-Covid-19 levels. Further, the premiums are expected to see some growth, with recovery in the economy. Our dashboard on MetLife’s revenues offers more details on the company’s operating segments along with our forecast for the next two years.

2) EPS is likely to miss the consensus estimates

MetLife Q3 2021 adjusted earnings per share (EPS) is expected to be $1.61 per Trefis analysis, almost 7% below the consensus estimate of $1.74. The company reported an adjusted net income of $5.2 billion in 2020 – down 9% y-o-y, primarily due to a higher effective tax rate in the year. Further, the figure decreased 93% y-o-y to $290 million in the first quarter due to higher expenses and lower revenues. However, the second-quarter results were quite different, with net income increasing from $68 million to $3.4 billion. This was driven by revenue growth and a decrease in operating expenses as a % of revenues from 99% to 76%. We expect the expenses to slightly increase in the third quarter.

Going forward, we expect MetLife’s net income margin to see some improvement in FY2021, leading to an adjusted net income of $5.7 billion – 10% above the year-ago period. It will likely result in an EPS of $6.60.  

(3) Stock price estimate 11% higher than the current market price

We arrive at MetLife’s valuation, using an EPS estimate of around $6.60 and a P/E multiple of just below 11x in fiscal 2021. This translates into a price of $71, which is 11% above the current market price of approximately $64. 

Note: P/E Multiples are based on Share Price at the end of the year and reported (or expected) Adjusted Earnings for the full year 

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