MetLife Inc, the largest global provider of insurance, annuities, and employee benefits program, reported that its second-quarter adjusted earnings slumped 43% due to falling premiums, fees and investment losses, sending its shares down about 5% pre-market trading on Thursday.
The U.S. insurer said its adjusted earnings of $758 million, or $0.83 per share, compared to adjusted earnings of $1.3 billion, or $1.38 per share in the second quarter of 2019. Adjusted earnings, excluding total notable items, of $758 million, or $0.83 per share, compared to adjusted earnings, excluding total notable items, of $1.4 billion, or $1.46 per share a year earlier.
The company’s net income fell to $68 million, or $0.07 per share, compared to $1.7 billion, or $1.77 per share in the second quarter of 2019. That was largely to decline in premiums and fees, falling 13% to $10.4 billion, from $12 billion a year ago.
MetLife’s net investment income was $4.1 billion, down 13% from the second quarter of 2019. Adjusted net investment income was $3.4 billion, down 24% from the prior-year period. The decline in net investment income was primarily driven by a loss in variable investment income, which reflects a one quarter reporting lag for private equity results.
On Wednesday, MetLife’s shares closed about 4% higher at $38.28 but on Thursday’s pre-market it’s down 4.65% to $36.50, still down over 25% so far this year.
“The decline in our private equity portfolio was squarely within our expectations. On underwriting, our well-diversified set of businesses provided meaningful offsets to increased claims from COVID-19. The quarter also demonstrated our ongoing commitment to consistent execution, which was evident in our strong cash generation and expense discipline,” said MetLife President and CEO Michel Khalaf.
MetLife stock forecast
Five analysts forecast the average price in 12 months at $44.50 with a high forecast of $45.00 and a low forecast of $44.00. The average price target represents a 16.25% increase from the last price of $38.28. From those five, five analysts rated ‘Buy’, none analysts rated ‘Hold’ and none rated ‘Sell’, according to Tipranks.
Morgan Stanley target price is $44 with a high of $51 under a bull scenario and $29 under the worst-case scenario. Evercore ISI raised its target price to $38 from $35 and JP Morgan upped it to $60 from $59.
Several other equity analysts have also updated their stock outlook. Royal Bank of Canada increased their price objective on shares of Metlife to $44 from $42 and gave the company an “outperform” rating. Wells Fargo & Co lowered their price objective on shares of Metlife to $44 from $59.00 and set an “overweight” rating.
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“Following its retail separation, the company is committed to profitable growth while also simplify its operations to reduce earnings volatility. Given these moves, the investment thesis for MetLife now revolves around capital management and free cash flow generation, growth in international operations, and expense reduction initiatives,” said Nigel Dally, equity analyst at Morgan Stanley.
“We believe MetLife has the ability to continue its solid execution in its various businesses. More importantly, the solid results over the past several quarters were not driven by a single division, with MetLife Holdings, US, and International all contributing to solid earnings performance,” he added.
Upside and Downside risks
Group benefits continue to perform above expectations; Interest rates increase notably, alleviate some earnings pressure; Acceleration of capital deployment plans International business grows faster than expected, Morgan Stanley highlighted as upside risks to MetLife.
Adverse currency moves; Sharply increased competition in the group benefits business; Geopolitical uncertainties outside of the U.S.; Surprise below the line charges, was the major downside risks.