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Leigh Baldwin & Co.

112 Albany Street, Cazenovia, NY 13035 | Phone: (315) 655-2964 Toll Free: 1-800-659-8044

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Stock of the Week


July 10th 2009 Metlife
Industry: Insurance
Price as of Jul 10th: $27.36

The spring rally is gone and the bears are coming back out. The financials are pulling back. Here we go again. The insurance stocks are also pulling back, but analysts remain bullish on the insurance stocks, predicting a rebound before the other financials. Many of the top insurance stocks now qualify for TARP money, yet most do not need it including this weeks featured stock of the week, Metlife. Metlife has performed well since March. In May, the government's stress test found that Metlife has adequate capital. At the end of May, Metlife was elected to move into the S&P 100 which is a great achievement. The financials and the broader market have a number of tough quarters to get through, but long term the insurance stocks and Metlife will eventually perform well.
Back on May 1st, the headlines for MetLife's earnings were not pretty. The company lost $574 million, or 71 cents per share, in the first three months of the year. Last year, MetLife made a profit of $615 million, or 84 cents per share. Sales dropped 12% to $10.2 billion, almost $2 billion short of Wall Street analysts' expectations for $11.9 billion in revenue. Revenue from premiums, fees and other revenue slipped 2 percent.
Like other insurers, MetLife has been hurt by stock market declines in recent months. The company said its loss on investments widened to $618 million, taking into account taxes. Its net investment income declined 24%to $3.3 billion from $4.3 billion in the year-ago quarter. MetLife emphasizes operating income because it excludes such losses and is considered more reflective of the company's performance. The company said operating income totaled 20 cents per share. That's still much less than Wall Street was expecting. Thomson Reuters says analysts were looking for a per-share profit of 34 cents. But even though the results don't sound good, Metlife is performing well and remains well capitalized. The government stress suggested that Metlife has $8 billion of excess capital even after two years of cumulative losses under the stress scenario, which implies that Metlife's guidance of $5 billion of excess is conservative. Among the top 19 financials, Metlife had the lowest cumulative loss rate on its risk weighted assets, bolstering the argument that life insurers' investment portfolios are generally more conservative than other financial institutions.
In June, Friedman Capital discussed their takeaways from meetings with Metlife mangement. Friedman believes that Metlife is among the most stable of the large life insurers and is well positioned to deliver long-term shareholder value. Frieman increased their 2009 and 2010 earnings estimates for Metlife to $2.71 and $4.00 a share from $2.15 and $3.70 a share. Wallstreet concensus is $2.49/$3.87 respectively. Based on Friedman's estimates and the cencensus estimates, Metlife is trading for 10 times earnings, 7 times next year's earnings, and 0.45 times sales. The stock is also trading below their book value of $28.25 a share. Short term business remains tough, but long term there is great shareholder value in Metlife and other insurance and financial stocks.