MetLife to Acquire Versant Health for $1.68 Billion; Target Price $44

MetLife Inc, one of the largest life insurer in the world, said it will acquire Versant Health from an investor group led by Centerbridge Partners and including FFL Partners for $1.68 billion in an all-cash transaction, making it the third-largest vision insurer in the U.S. by membership.

The deal is targeted to close in the fourth quarter of this year, subject to customary closing conditions, including regulatory approvals.

Following the deal, MetLife will gain access to Versant Health’s roughly 35 million members, and MetLife’s existing customers will gain access to Versant Health’s extensive provider network, which is one of the largest in the industry, the company said.

“We view the announcement today of MetLife’s planned acquisition of Versant health positively. Not only is the transaction consistent with its strategy of growing low capital intensive non-medical health operations, but it also demonstrates management confidence in their current capital position, with the company also announcing plans to complete their existing buyback plan this year, implying roughly $0.5 billion of buybacks by year-end,” said Nigel Dally, equity analyst at Morgan Stanley.

CapM Advisors acted as financial advisor and Sidley Austin LLP served as legal counsel to MetLife in connection with this transaction. Barclays and Centerview Partners, LLC acted as financial advisors and Willkie Farr & Gallagher LLP served as legal counsel to Versant Health in connection with this transaction.

At the time of writing, MetLife’s shares traded 0.58% higher at $37.85 on Thursday; however, the stock is down over 25% so far this year.

Executives’ comment

“We expect this combination to accelerate revenue growth while delivering greater value for our customers and shareholders,” said MetLife President and CEO Michel Khalaf.

“We are confident this acquisition will make our market-leading group benefits business even more attractive,” said Ramy Tadros, President of U.S. Business for MetLife. “The addition of the strong Davis Vision and Superior Vision brands will immediately establish MetLife as a leader in managed vision care. We look forward to offering our customers the exceptional member experiences that Versant provides.”

MetLife stock forecast

Five analysts forecast the average price in 12 months at $44.20 with a high forecast of $47.00 and a low forecast of $39.00. The average price target represents a 17.58% increase from the last price of $37.59. From those five equity analysts, four rated “Buy”, one rated “Hold” and none rated “Sell”, according to Tipranks.

Morgan Stanley gave a target price of $46 with a high of $53 under a bull-case scenario and $30 under the worst-case scenario. Argus restated a “Buy” rating on shares of Metlife.

Other equity analysts also recently updated their stock outlook. ValuEngine cut shares of Metlife from a “Sell” rating to a “Strong sell” rating. Wells Fargo & Co reiterated a “Buy” rating and set a $45 price objective. Zacks Investment Research raised shares of Metlife from a “Sell” rating to a “Hold” rating and set a $45 target price. At last, Bank of America set a “buy” rating on the stock.

Analyst views

“Following its retail separation, the company is committed to profitable growth while also simplify its operations to reduce earnings volatility. Company also de-riskd its investment portfolio somewhat. 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,” Morgan Stanley’s Nigel Dally said.

“We believe MetLife has the ability to continue its solid execution in its various businesses. More important, the solid results over the past several quarters were not driven by a single division, with all segments contributing to earnings growth to a certain extent.”

Upside and Downside Risks

Upside: 1) Group benefits performs above expectations. 2) Interest rates increase notably, alleviate some earnings pressure. 3) Acceleration of capital deployment plans. 4) International business grows faster than expected, highlighted by Morgan Stanley.

Downside: 1) Adverse currency moves. 2) Sharply increased competition in the group benefit business. 3) Geopolitical uncertainties outside of the US. 4) Surprise below the line charges.

Check out FX Empire’s earnings calendar

MetLife Q2 Adjusted Earnings Slump 43%; Top Analysts Recommend Hold

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.

Executive comments

“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.

We think it is good to hold for now as 100-day Moving Average and 100-200-day MACD Oscillator signal a mild selling opportunity.

Analyst comment

“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.