Why MetLife Stock Is Best Avoided For Now

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Comparing the trend in MetLife’s (NYSE: MET) stock over recent months with its trajectory during and after the Great Recession of 2008, we believe that the stock can recover to the $41 level similar to the trends seen in the last crisis once fears surrounding the coronavirus outbreak are put to rest. This represents a limited upside potential of around 15% for the stock. Our conclusion is based on our detailed comparison of MetLife’s performance against the S&P 500 in our interactive dashboard analysis, 2007-08 vs. 2020 Crisis Comparison: How Did MetLife Stock Fare Compared With S&P 500?

The World Health Organization (WHO) declared a global health emergency at the end of January in light of the coronavirus spread, followed by significant negative movement in the stock market. However, the broader markets improved through 19th February after signs of effective containment of the coronavirus spread in China, and hopes of monetary easing by major central banks boosted investor confidence. But between Feb 20th and April 10th, MET’s stock lost 32% of its value (vs. about 19% decline in the S&P 500). A bulk of the decline came after March 8th, when an increasing number of Coronavirus cases outside China fueled concerns of a global economic slowdown. Matters were only made worse by fears of a price war in the oil industry triggered by an increase in oil production by Saudi Arabia.

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MetLife’s Stock Has Fallen Considerably Because The Situation On The Ground Has Changed

MetLife’s stock has suffered as states and countries are on lockdown due to Coronavirus pandemic. This could result in lower premium revenues for the company as business and individuals would be more focused on the short term. Further, the company could also face a significant increase in health insurance claims. In addition to this, the insurance giant is heavily dependent on income from investment of insurance premiums for its profitability, which is going to suffer due to lower asset valuations driven by the economic slowdown.

We believe MetLife’s Q1 and Q2 results will confirm this reality with a drop in investment income and higher policyholder claims. If signs of coronavirus containment aren’t clear by the April Q1 earnings timeframe, it’s likely MetLife’s stock along with the broader market is going to see a continued drop when results confirm palpable reality.

 

But MetLife Stock Witnessed Something Similar During The 2008 Downturn

We see MET stock declined from levels of around $45 in October 2007 (the pre-crisis peak) to roughly $12 in March 2009 (as the markets bottomed out) – implying that the stock lost as much as 73% of its value from its approximate pre-crisis peak. This marked a sharper drop than the broader S&P, which fell by about 51%.

However, MET recovered strongly post the 2008 crisis to about $24 in early 2010 – rising by 96% between March 2009 and January 2010. In comparison, the S&P bounced back by about 48% over the same period.

 

Will MetLife Stock Recover Similarly From The Current Crisis?

Keeping in mind the fact that MET stock has fallen 32% this time around compared to the 73% decline during the 2008 recession, a likely outcome might be for it to recover by 15% to levels of $41 once economic conditions begin to show signs of improving. This marks a partial recovery to the $52 level MET stock was at before the coronavirus outbreak gained global momentum. The limited upside potential for the stock could be attributed to the expected jump in policyholder benefits and claims coupled with a drop in income from investment of insurance premiums, which will likely hurt the company’s revenues in the near term despite its solid balance sheet.

That said, the actual recovery and its timing hinge on the broader containment of the coronavirus spread. Our dashboard forecasting US COVID-19 cases with cross-country comparisons analyzes expected recovery timeframes and possible spread of the virus.

Further, our dashboard -28% Coronavirus crash vs. 4 Historic crashes builds a complete macro picture. It complements our analyses of the coronavirus outbreak’s impact on a diverse set of financial services companies, including State Street and Morgan Stanley. The complete set of coronavirus impact and timing analyses is available here.

 

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