MetLife (NYSE: MET) is scheduled to report its fiscal Q1 2021 results on Thursday, May 6. We expect MetLife to deliver strong results with both revenues and earnings beating expectations. The company reported better than expected results in the last quarter of 2020, primarily driven by growth in premiums and net investment income. MetLife’s full-year 2020 revenues were slightly below the 2019 figure, mainly driven by lower net investment income. The net investment income suffered due to lower investment yields, as a result of the interest rate headwinds. Interestingly, MET premiums were only marginally lower on a year-on-year basis, despite the impact of the Covid-19 crisis. This was due to slight growth in the U.S and EMEA segment premiums. That said, the net investment income has improved over the second half of the year driven by some recovery in the economy. We expect the same trend to drive the first-quarter FY2021 results as well.
Our forecast indicates that MetLife’s valuation is around $58 per share, which is 10% below the current market price of around $64. Look at our interactive dashboard analysis on MetLife’s pre-earnings: What To Expect in Q1? for more details.
(1) Revenues expected to top the consensus estimates in Q1
Trefis estimates MetLife’s fiscal Q1 2021 revenues to be around $16.62 billion, 4% above the $15.97 billion consensus estimate. MetLife’s reported revenues of $67.8 billion for the full year 2020 – down 3% y-o-y. It was mainly due to a 9% y-o-y drop in the net investment income, which is very important for the profitability of any insurance company. The net investment income was down, as the investment yields dropped in the year due to the impact of the lower interest rate environment. However, the impact was partially offset by the positive growth in total invested assets. Notably, the net premiums were marginally below the year-ago value, mainly driven by the Covid-19 crisis and the economic slowdown – net premiums grew at a CAGR of 4% over 2016-2019. We expect the recovery in net investment income and premiums to drive first-quarter FY2021 results.
The insurance premiums are likely to see stagnant growth in FY2021. Further, the lower investment yields are unlikely to record an immediate recovery to the pre-Covid-19 levels, as the lower interest rate environment is expected to remain for some time. Overall, the MET’s revenues are likely to remain around $66.5 billion in FY2021. Our dashboard on MetLife’s revenues offers more details on the company’s segments.
2) EPS likely to beat the consensus estimates
MetLife’s Q1 2021 adjusted earnings per share (EPS) is expected to be $1.61 per Trefis analysis, almost 5% above the consensus estimate of $1.53. MET’s adjusted net income decreased 9% y-o-y to $5.2 billion in the year, despite a positive drop in the operating expenses as a % of revenues from 90.2% to 89.8%, driven by lower interest credited to policyholder account balances. The lower net income could be attributed to the higher effective tax rate in 2020. Overall, the net income margin declined from 8.2% to 7.6%, resulting in an EPS of $5.72. We expect the same trend to continue in FY2021 Q1 results.
MetLife’s adjusted net income margin is likely to improve in FY2021 and be around 8.5%. This will enable MET to report an EPS of around $6.45 in the current year.
(3) Stock price estimate 10% lower than the current market price
Going by our MetLife’s valuation, with an EPS estimate of $6.45 and a P/E multiple of 9x in fiscal 2021, this translates into a price of $58, which is 10% below the current market price of around $64.
Note: P/E Multiples are based on Share Price at the end of the year and reported (or expected) Adjusted Earnings for the full year
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