Critical Growth In Global Financial Services Drives Robust Earnings Potential

Key Takeaways

• MetLife is positioned to grow revenue through low U.S. unemployment and favorable international market conditions, particularly in Japan, Mexico, and Brazil.
  
• The company's digital distribution strategy in Latin America and strong pension risk transfer sales are enhancing earnings and improving margins.
  
• Geopolitical challenges, interest margin pressures, and underperforming investments could negatively impact MetLife's global operations, earnings growth, and regional revenues.

Catalysts

A financial services company, provides insurance, annuities, employee benefits, and asset management services worldwide.

• MetLife is poised to benefit from the low unemployment levels and a positive yield curve in the U.S., which can enhance revenue growth in its Group Benefits and Retirement and Income Solutions businesses.
  
• Internationally, favorable economic and market conditions in Japan, Mexico, and Brazil could drive growth in revenues as well as improve net margins through increased market penetration and diversification.
  
• MetLife is capitalizing on the growing trend of digital distribution for financial products in Latin America, which could lead to higher margins through expanded customer reach and lower distribution costs.
  
• The pension risk transfer business is experiencing strong sales momentum, with a significant pipeline of defined benefit pension de-risking transactions over the next 2-5 years, potentially boosting revenues and enhancing earnings growth.
  
• MetLife's strategic focus on high-return businesses and efficient capital allocation is leading to improved internal rates of return and reduced payback periods, indicating potential for increased net margins and earnings in the future.

MetLife Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming MetLife's revenue will grow by 5.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 5.0% today to 7.5% in 3 years time.
• Analysts expect earnings to reach $6.3 billion (and earnings per share of $9.68) by about November 2027, up from $3.6 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $5.5 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 11.3x on those 2027 earnings, down from 15.9x today. This future PE is lower than the current PE for the US Insurance industry at 13.5x.
• Analysts expect the number of shares outstanding to decline by 2.11% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.06%, as per the Simply Wall St company report.

MetLife Future Earnings Per Share Growth

Risks

• Geopolitical conditions remain challenging in many regions, along with potential political uncertainties due to upcoming elections in the U.S., which could impact MetLife's global operations and potentially influence future revenues and earnings.
  
• Recurring interest margins have been less favorable compared to the previous year, partially due to the roll-off of interest rate caps. This could lead to stabilization rather than an increase in spreads moving forward, potentially affecting earnings growth.
  
• Asia has experienced a decline in adjusted earnings due to market-related items and unfavorable changes in lapse assumptions and fund returns in Japan and Korea, which can negatively affect revenue and margins in the region.
  
• Group Benefits business adjusted earnings fell due to less favorable nonmedical health underwriting margins compared to the previous strong quarter, indicating potential pressure on net margins if not swiftly corrected.
  
• The private equity portfolio returns were below expectations, contributing to a decline in variable investment income compared to the previous year. Continued underperformance in this area could negatively impact total net investment income and overall earnings.

Valuation

• The analysts have a consensus price target of $89.54 for MetLife based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $101.0, and the most bearish reporting a price target of just $68.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $84.1 billion, earnings will come to $6.3 billion, and it would be trading on a PE ratio of 11.3x, assuming you use a discount rate of 7.1%.
  
• Given the current share price of $82.02, the analyst's price target of $89.54 is 8.4% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.