New Frontier Strategy Will Secure A Resilient Business Future

Key Takeaways

• Strategic diversification and risk management initiatives are enhancing stability and predictability of revenues and earnings for MetLife.
  
• International growth opportunities and increased asset management income could improve revenue diversification and drive future earnings.
  
• Uncertainty in global markets, currency fluctuations, and rising interest rates could pressure MetLife's earnings and impact its investment and Group Benefits segments.

Catalysts

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

• MetLife's New Frontier strategy aims to guide the company over the next five years, emphasizing strategic diversification and an all-weather business model. This approach can increase stability and predictability of revenues and earnings, potentially positively impacting future net margins and earnings.
  
• The weakening U.S. dollar, after a period of strength, could provide a tailwind for MetLife's international business growth, which has previously been masked by currency headwinds. This may lead to increased revenue and improved earnings from international operations.
  
• The reinsurance agreement with Talcott Resolution Life Insurance Company for U.S. retail variable annuities aims to reduce MetLife's enterprise risk and tail risk associated with retail variable annuities. This risk transfer could lead to enhanced capital flexibility and more stable earnings.
  
• MetLife Investment Management is on a path to grow its total assets under management to $1 trillion, supported by acquisitions such as PineBridge. Increasing asset management income can diversify revenue streams and improve overall earnings, especially as third-party fee income expands.
  
• MetLife's capital management strategy includes a new $3 billion share repurchase authorization and a 4.1% increase in the common dividend per share. These actions reflect a commitment to returning excess capital to shareholders and can drive growth in earnings per share.

MetLife Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming MetLife's revenue will grow by 4.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 5.9% today to 7.5% in 3 years time.
• Analysts expect earnings to reach $6.2 billion (and earnings per share of $10.51) by about May 2028, up from $4.3 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $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 10.2x on those 2028 earnings, down from 11.9x today. This future PE is lower than the current PE for the US Insurance industry at 14.4x.
• Analysts expect the number of shares outstanding to decline by 5.6% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.22%, as per the Simply Wall St company report.

MetLife Future Earnings Per Share Growth

Risks

• The slowing economy could dampen growth for MetLife's Group Benefits business, potentially impacting revenue and earnings.
  
• Unfavorable foreign currency exchanges have already negatively affected earnings in Asia and Latin America, and continued fluctuations could further impact net margins.
  
• Rising interest rates have led to lower recurring interest margins, which could pressure earnings if the trend continues.
  
• Uncertainty and volatility in equity markets and interest rates could disrupt the stability and profitability of MetLife's investment-focused business segments, affecting overall earnings.
  
• Adjusted earnings in regions like Asia and Latin America have been negatively impacted by higher taxes and foreign exchange volatility, which may continue to pressure net margins if these issues persist.

Valuation

• The analysts have a consensus price target of $90.643 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 $6.2 billion, and it would be trading on a PE ratio of 10.2x, assuming you use a discount rate of 7.2%.
  
• Given the current share price of $76.42, the analyst price target of $90.64 is 15.7% 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.