New Frontier Strategy And Chariot Re Will Diversify And Expand Global Operations

Key Takeaways

• MetLife's New Frontier strategy prioritizes group benefits, asset management, and international expansion to drive earnings growth through diversification and scale.
  
• Strategic acquisitions and Chariot Re formation aim to enhance revenue and earnings by leveraging expertise and expanding life and retirement solutions globally.
  
• Economic and regulatory challenges, including inflation, currency risks, and investment income volatility, could pressure MetLife's revenue and net margins.

Catalysts

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

• MetLife's New Frontier strategy, with priorities in group benefits, retirement platforms, asset management, and international expansion, is expected to fuel approximately 80% of adjusted earnings growth, potentially increasing revenue and net margins through diversification and scale.
  
• The formation of Chariot Re, a new reinsurance company, is anticipated to drive life and retirement solutions growth globally, impacting revenue and earnings by leveraging MetLife's insurance and investment expertise.
  
• Strategic acquisitions, like PineBridge Investments and assets from Mesirow Financial, are expected to bolster MetLife Investment Management’s offerings, potentially increasing investment revenue and contributing to overall earnings growth.
  
• Commitment to deliver double-digit adjusted EPS growth over the five-year New Frontier period is supported by a 60% contribution from business and margin growth, and 40% from disciplined capital management, which should enhance earnings significantly.
  
• MetLife's goal to lower the direct expense ratio by 100 basis points by 2029, coupled with improved efficiencies, is expected to bolster net margins and free cash flow, directly enhancing earnings and shareholder value.

MetLife Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming MetLife's revenue will grow by 5.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 6.0% today to 7.8% in 3 years time.
• Analysts expect earnings to reach $6.5 billion (and earnings per share of $10.77) by about March 2028, up from $4.2 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $7.2 billion in earnings, and the most bearish expecting $4.7 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 11.1x on those 2028 earnings, down from 13.3x today. This future PE is lower than the current PE for the US Insurance industry at 13.2x.
• Analysts expect the number of shares outstanding to decline by 4.2% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.86%, as per the Simply Wall St company report.

MetLife Future Earnings Per Share Growth

Risks

• Concerns around persistent inflation and uncertainty about future interest rate cuts could impact MetLife's ability to grow revenue and maintain net margins.
  
• Currency headwinds, especially from the weakening of the yen and Latin American currencies, may negatively affect MetLife's international earnings growth when translated to U.S. dollars.
  
• Increasing expenses related to technology initiatives and seasonal enrollment costs might pressure MetLife's net margins if not offset by revenue growth.
  
• Volatility in private equity and real estate investment income introduces risk to variable investment income, which could adversely affect MetLife's overall earnings.
  
• Potential changes in regulation and market conditions, such as pension reform in Chile and legal challenges in the PRT market, could impact MetLife's revenue growth and net margins in those segments.

Valuation

• The analysts have a consensus price target of $95.429 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 $110.0, and the most bearish reporting a price target of just $73.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $82.7 billion, earnings will come to $6.5 billion, and it would be trading on a PE ratio of 11.1x, assuming you use a discount rate of 7.9%.
  
• Given the current share price of $82.25, the analyst price target of $95.43 is 13.8% higher.
  
• 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.