MetLife Stock Is Trailing S&P500 In YTD Returns, What To Expect?

MetLife’s stock (NYSE: MET) has gained 6% YTD as compared to the 10% rise in the S&P500 index over the same period. Notably, MetLife’s peer Prudential Financial (NYSE: PRU) is up 5% YTD. Overall, at its current price of $69 per share, MET is trading 19% below its fair value of $85 – Trefis’ estimate for MetLife’s valuation. 

Amid the current financial backdrop, MET stock has seen extremely strong gains of 75% from levels of $40 in early January 2021 to around $70 now, vs. an increase of about 40% for the S&P 500 over this roughly 3-year period. However, the increase in MET stock has been far from consistent. Returns for the stock were 37% in 2021, 19% in 2022, and -5% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – indicating that MET underperformed the S&P in 2023. In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Financials sector including JPM, V, and MA, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could MET face a similar situation as it did in 2023 and underperform the S&P over the next 12 months – or will it see a strong jump?

The insurance giant outperformed the consensus estimates in the second quarter of FY 2024. It reported total GAAP revenues of $17.8 billion – up 7% y-o-y, mainly due to a drop in net investment losses from $1.04 billion to $421 million and a decrease in net derivative losses from around $1 billion to $508 million. Notably, the premiums figure was marginally lower than the year-ago period, while net investment income posted a slight growth. On the cost front, total expenses as a % of revenues witnessed a favorable decrease in the quarter, resulting in an adjusted net income of $912 million vs $370 million.

The company’s top line grew 6% y-o-y to $33.9 billion in the first two quarters of FY 2024. It was primarily due to lower net investment losses – down from $1.7 billion to $796 million, a 10% rise in the net investment income, and a 2% gain in the premiums. Further, the total expenses as a % of revenues were down over the same period. Altogether, it resulted in an adjusted net income of $1.7 billion (as compared to $384 million).

Moving forward, we expect the third quarter revenues to be on a similar line. Overall, MetLife revenues are forecast to remain around $71.42 billion in FY2024. In addition, the net income margin will likely improve in the year, leading to an adjusted net income of $3.2 billion. This coupled with an annual GAAP EPS of $4.54 and a P/E multiple of just below 19x will lead to a valuation of $85.

[1] Returns as of 8/8/2024
[2] Cumulative total returns since the end of 2016

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