Brace Yourself For Another Wild Month In Stock Markets

For the year, the Dow is down -6%, the S&P 500 is down just over -9%, and the Nasdaq has lost -14.7%. The previous record-holder is January 2009, an ugly moment for the economy, when the stock market fell -8.6%. In addition, the VIX – aka the CBOE Volatility Index – has actually dropped back to around 31 after topping 37 earlier this week, its highest point since November 2020.

Keep in mind, the index isn’t registering anywhere close to levels reached during other periods of “extreme” volatility. For example, the index, which is measured between zero and 100, hit its highest point of almost 83 during the financial crisis in 2008. Its most extreme point during the pandemic was around 66 in March 2020. So, by comparison, this week’s volatility has been rather mild.

Federal Reserve

Some insiders equate the wild swings in stock prices to investors, particularly “big money,” trying to establish a new baseline for stock valuations minus the Fed’s easy money policies that have driven a massive amount of cash into markets since the pandemic began in 2020.

At its height, the Fed was pumping as much as +$120 billion per month into the system via its asset purchase program, ballooning its balance sheet to now nearly $9 trillion.

At the same time, the Fed has held its benchmark rate at near-zero and, before that, hadn’t even attempted to raise rates since 2018, and then only briefly. The last full-cycle of rate hikes was 2015. What’s more, investors haven’t really had to factor for inflation since the early 90s and it hasn’t been this high since the 80s.

Bottom line, whatever the new “normal” ends up looking like, it will be dramatically different from the pre-pandemic investing landscape. I’ve heard several large stock traders saying it seems to be the return of Alpha instead of the race to levered Beta. I hear others on Wall Street referencing it to a bit of league recreational youth baseball team where everybody now gets an award simply for participation, but then kids run into a rude awakening when performance really starts to matter.

It feels like we are there in the stock market; every business that was coming into the market was simply being rewarded with participation points, now people are starting to keep a real scorebook and counting the strikeouts and runs scored.

Economy still roars

The good news is that the U.S. economy continues to roar. Historically, a combination of moderate inflation and moderate interest rates has led to some of the biggest boom times for U.S. Last week, the Commerce Department said Q4 Gross Domestic Product (GDP) grew at an annualized rate of +6.9%, stronger than Q3’s +2.3% and well above Wall Street expectations of around +5.7% growth.

Consumer spending climbed at a +3.3% annual pace led by a +4.7% increase in services spending. But the real stand out was private investment which rocketed +32% higher, boosted by a surge in business inventories as companies stocked up to meet higher customer demand. Rising inventories, in fact, contributed nearly +5% to Q4 GDP growth.

On the one hand, the inventory build is positive because it indicates an easing of supply chain dislocations that should in turn help with inflation pressures. On the other hand, many economists note that the big boost from retailer and wholesaler restocking is not likely to be repeated.

Companies will also likely start to unwind at least some of that inventory in the quarters ahead, which could drag overall 2022 GDP, especially if consumer spending also drops off. And investors are more closely tracking consumer behavior as inflation continues to rise.

With consumer spending accounting for about 70% of the U.S. economy, any signs that belts are tightening or moods are getting overly pessimistic will likely set off some alarm bells.

Data to watch

Turning to next week, it will be another busy one for both key economic data as well as earnings. The main economic data highlight will be the January Employment Situation on Friday. Other key data includes ISM Manufacturing, Construction Spending, and the JOLTS report on Tuesday; ADP’s private payrolls report on Wednesday; Productivity & Costs, Factory Orders, and the ISM Non-Manufacturing Index on Thursday.

Earnings wise, results are due from NXP Semiconductor and Trane on Monday; Advanced Micro Devices, Alphabet, Amgen, Chubb, Electronic Arts, Exxon, General Motors, Gilead Sciences, Match Group, PayPal, Sirius XM, Starbucks, and UPS on Tuesday; AbbVie, Aflac, Allstate, Boston Scientific, CNH, Corteva, D.R. Horton, Ferrari, Humana, Johnson Controls, Meta (Facebook), MetLife, Novartis, Novo Nordisk, Qualcomm, Siemens, Thermo Fisher, TMobile, and Waste Management on Wednesday; Activision Blizzard, Amazon, Biogen, Carlyle Group, Check Point, Cigna, Clorox, ConocoPhillips, Deckers Outdoors, Eli Lilly, Estee Lauder, Ford, Hanesbrands, Hershey, Honeywell, Ingredion, Merck, Pinterest, Quest Diagnostics, Royal Dutch Shell, Snap, SnapOn, Wynn Resorts, and Xylem on Thursday; and BristolMyersSquibb, CBOE, Phillips 66, Regeneron, and Sanofi on Friday.

Bottom line, brace for another huge week of extreme volatility.

Wall Street Week Ahead Earnings: Alphabet, PayPal, Exxon Mobil, Meta, Qualcomm and Amazon in Focus

Investors will focus on December quarter earnings for stocks that are economically sensitive, which should show better profits than technology stocks. Increasing Treasury yields and risk aversion will hit the stock market hard next week, making the big tech earnings that much more critical. In addition, investors will closely monitor the latest news on the rapidly spread Omicron coronavirus variant to see how it impacts earnings in 2022.

Earnings Calendar For The Week Of January 31

Monday (January 31)

TICKER COMPANY EPS FORECAST
CBT Cabot $1.06
CRUS Cirrus Logic $1.91
FN Fabrinet $1.28
HLIT Harmonic $0.09
NXPI NXP Semiconductors $2.67
PCH PotlatchDeltic $0.48
RYAAY Ryanair Holdings $-0.15
SANM Sanmina $0.91
TT Trane Technologies $1.31
WWD Woodward $0.83

 

Tuesday (February 1)

IN THE SPOTLIGHT: ALPHABET (GOOGLE), PAYPAL, EXXON MOBIL

ALPHABET: The parent of Google and the world’s largest search engine that dominates internet search activity globally is expected to report its fourth-quarter earnings of $26.71 per share, which represents year-over-year growth of about 20% from $22.3 per share seen in the same period a year ago.

The Mountain View, California-based internet giant would post revenue growth of nearly 27% to $72.133 billion from $56.9 billion a year ago. It is worth noting that the company has consistently beaten consensus earnings estimates in the last two years, at least.

“Key Alphabet (GOOG) ’22 Ad Buyer Survey conclusions: i) Google Search remains highest ROI platform; ii) YouTube expected to gain ad share ’21-’23; & iii) GOOG Search & YouTube are the top platforms for ad buyers reallocating budget due to iOS changes. We est. GOOG’s share of WW Digital adv. (x-China) goes from 41% to 37% ’22-’27. We extended model to ’27, PT to$3,500 vs. prior $3,360, reiterate Outperform,” noted John Blackledge, equity analyst at Cowen.

PAYPAL: The digital payments company is expected to report its fourth-quarter earnings of $0.86 per share, which represents year-over-year growth of about 15% from $0.75 per share seen in the same period a year ago. The San Jose, California-based company would post revenue growth of over 12% to around $6.9 billion.

EXXON MOBIL: The oil company will see its earnings rise multi-fold in the fourth quarter thanks to higher energy prices and a waning pandemic that helped it bounce back after a tough period in 2020.

The Irving Texas-based company is expected to report its fourth-quarter earnings of $1.73 per share, which represents year-over-year growth of over 5,666%, up from $0.03 per share seen in the same period a year ago.

The U.S. largest publicly traded oil company is expected to report a 97.3% increase in revenue to $91.845 billion from $46.54 billion a year ago. On Dec 30, the Irving Texas-based company in its regulatory filing said that higher oil and gas prices would enable it to achieve annual profitability starting in 2021 with an operating profit increase of up to $1.9 billion.

The U.S. largest publicly traded oil company hinted that oil and gas earnings could decrease by up to $1.2 billion as a result of one-time charges for asset impairments and contractual costs. Exxon announced late last year announced that a sharply higher operating profit in oil and gas, prompting Credit Suisse, Scotiabank, and JPMorgan to raise their fourth-quarter earnings estimates.

“Improving FCF outlook and dividend sustainability. With a more constructive commodity price outlook, lower capital spending, and additional cash operating cost savings, the dividend is covered in 2021 and averages >100% over the next 5-years on our estimates. Improving dividend sustainability supports yield compression for Exxon Mobil (XOM) relative to CVX,” noted Devin McDermott, Equity Analyst and Commodities Strategist at Morgan Stanley.

“Cost cuts defend the dividend. In 2020, Exxon Mobil (XOM) reduced 2022-25 spending plans to $20-25B from $30-35B (recently extended to 2027), improving dividend sustainability while limiting further pull on the balance sheet. Additionally, Exxon Mobil (XOM) is targeting $6B in structural operating cost reductions by 2023 which should put upward pressure on consensus FCF estimates.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE FEBRUARY 1

TICKER COMPANY EPS FORECAST
AMD Advanced Micro Devices $0.69
AMCR Amcor $0.18
ASH Ashland Global Holdings $0.93
CTLT Catalent $0.79
CB Chubb $3.34
EA Electronic Arts $2.81
XOM Exxon Mobil $1.73
GM General Motors $0.84
NMR Nomura Holdings $0.2
SBUX Starbucks $0.8
UBS UBS Group $0.24
UPS United Parcel Service $3.05

 

Wednesday (February 2)

IN THE SPOTLIGHT: META PLATFORMS (FACEBOOK), QUALCOMM

META PLATFORMS (FACEBOOK): The world’s largest online social network is expected to report its fourth-quarter earnings of $3.78 per share, which represents a year-over-year decline of over 2% from $3.88 per share seen in the same period a year ago.

The Menlo Park, California-based social media conglomerate would post revenue growth of over 30% to around $33.04 billion. The social media giant has consistently beaten consensus earnings estimates in most of the quarters in the last two years, at least.

QUALCOMM: The world’s biggest mobile phone chipmaker is expected to report its fiscal first-quarter earnings of $2.77 per share, which represents a year-over-year decline of over 40% from $1.97 per share seen in the same period a year ago.

The chip manufacturer would post revenue growth of nearly 27% to $10.45 billion. It is worth noting that the company has consistently beaten consensus earnings estimates in the last two years, at least.

Qualcomm forecasts GAAP revenue in the first quarter of fiscal 2022 to be between $10 billion and $10.8 billion. On a non-GAAP basis, earnings will likely range from $2.90 to $3.10 per share, while GAAP earnings will likely range from $2.53 to $2.73 per share, according to ZACKS Research.

“After underperforming the SOXX for most of 2021 until a sharp rally late in the year, we see a strong setup for a now Apple-overhang-free Qualcomm in 2022 as investors begin to appreciate the diverse revenue drivers beyond Wireless. Expect solid print and guide, with focus on execution and growth in the connected intelligent edge and update our estimates accordingly,” noted Matthew Ramsay, equity analyst at Cowen.

“We reiterate our price target of $210 based on 17.5x our F2023 EPS estimate of $12.0 and our Outperform rating.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE FEBRUARY 2

TICKER COMPANY EPS FORECAST
EAT Brinker International $0.5
CHRW C.H. Robinson Worldwide $1.85
CPRI Capri Holdings $1.67
CTSH Cognizant Technology Solutions $1.03
RACE Ferrari $1.08
FB Meta Platforms $3.78
MET MetLife $1.63
TMUS T-Mobile $0.2

 

Thursday (February 3)

IN THE SPOTLIGHT: AMAZON

The e-commerce leader for physical and digital merchandise, Amazon, is expected to report its fourth-quarter earnings of $3.9 per share, which represents a year-over-year decline of over 70% from $14.09 per share seen in the same period a year ago.

However, the Seattle, Washington-based multinational technology giant would post revenue growth of about 10% to around $138 billion. The company has beaten earnings per share (EPS) estimates most of the time in the two years.

“We are reiterating our BUY rating and our price target to $3,900. Our price target is based on our updated discounted cash flow model, including our long-term adj. EBITDA margin forecast of 22.0% versus 13.7% in 2020,” noted Tom Forte, MD, Senior Research Analyst at D.A. DAVIDSON.

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE FEBRUARY 3

TICKER COMPANY EPS FORECAST
ABB ABB $0.38
ALL Allstate $2.72
COP ConocoPhillips $2.23
LLY Eli Lilly $2.37
HON Honeywell International $2.09
PRU Prudential Financial $2.44
SU Suncor Energy $0.95
SYNA Synaptics $2.63

 

Friday (February 4)

TICKER COMPANY EPS FORECAST
APD Air Products & Chemicals $2.51
AON Aon $3.33
BMY Bristol Myers Squibb $1.85
CBOE Cboe Global Markets $1.41
ETN Eaton $1.73

 

MetLife Shares Rise on Q3 Earnings Beat; Target Price $74

MetLife, one of the world’s largest life insurers, reported better-than-expected earnings in the third quarter and said its adjusted net investment income increased by 21%, mainly due to higher variable investment income from strong private equity returns.

The New York-based insurer reported adjusted earnings of $2.1 billion, up 31% from the third quarter of 2020. On a per-share basis, adjusted earnings rose 38% to $2.39 from the prior-year period. That was higher than the Wall Street consensus estimates of $1.74 per share.

The insurance company said its net investment income rose 18% to $5.6 billion from a year earlier. Adjusted net investment income was $5.7 billion, up 21% from the prior-year period, largely driven by higher variable investment income primarily due to strong private equity returns. Net income was $1.5 billion, compared to net income of $633 million in the third quarter of 2020.

An increase in investment income has helped global life insurers offset payouts increased payouts related to the COVID-19 pandemic crisis.

MetLife delivered another very strong quarter. Outstanding variable investment income more than offset elevated COVID-19 claims, underlying PFO growth was strong, and expense discipline held firm. Having the right strategy, a superior asset mix, and consistent execution continues to generate exceptional earnings,” said MetLife President and CEO Michel Khalaf.

MetLife shares rose 2.50% to $65.28 on Wednesday. The stock surged nearly 40% so far this year.

Analyst Comments

“Variable investment income was considerably above, COVID-related claims were significantly worse, making for a noisy quarter. Underlying the noise – core results were solid, matching our expectations, augmented by aggressive capital management,” noted Nigel Dally, equity analyst at Morgan Stanley.

“Forward estimates largely unchanged, reiterate our overweight rating: We are increasing our COVID-expected impact for 4Q21, leading us to trim our EPS to $1.40 (down $0.25). Our 2022 and 2023 estimates, which include normal VII and no incremental pandemic impacts, remain unchanged at $7.30 and $7.75 respectively, as does our $75 price target.”

MetLife Stock Price Forecast

Six analysts who offered stock ratings for MetLife in the last three months forecast the average price in 12 months of $74.33 with a high forecast of $77.00 and a low forecast of $72.00.

The average price target represents a 13.86% change from the last price of $65.28. All of those six analysts rated “Buy”, according to Tipranks.

Morgan Stanley gave the base target price of $75 with a high of $86 under a bull scenario and $51 under the worst-case scenario. The firm gave an “Overweight” rating on the insurer company’s stock.

Several other analysts have also updated their stock outlook. Barclays raised the price target to $72 from $69. Piper Sandler lifted the price target to $77 from $75. BofA upped the price objective to $74 from $70.

We think it is good to buy at the current level and target $74 as a 100-day Moving Average, and a 100-200-day MACD Oscillator signals a strong buying opportunity.

Check out FX Empire’s earnings calendar

MetLife Tops Earnings Estimates; Target Price $72

MetLife, one of the world’s largest life insurers, reported better-than-expected earnings in the second quarter of 2021 and told investors its adjusted net investment income soared by 49%, mainly due to higher variable investment income from strong private equity returns.

The New York-based insurer reported a net income of $3.4 billion, or $3.83 per share, compared to net income of $68 million, or $0.07 per share, in the second quarter of 2020. Adjusted earnings of $2.1 billion, or $2.37 per share, compared to adjusted earnings of $758 million, or $0.83 per share, in the second quarter of 2020. That was higher than the Wall Street consensus estimates of $1.68 per share.

The insurance company said its net investment income was $5.3 billion, up 29% from the second quarter of 2020 and adjusted net investment income was $5.1 billion, up 49% from the prior-year period.

MetLife stock rose over 1.6% to $58.05 in extended trading on Wednesday. The shares have gained 20% so far this year.

Analyst Comments

“This quarter’s results clearly received an outsized benefit from strong alternative results; underlying results remain robust, despite the pressure of the pandemic on group insurance,” noted Nigel Dally, equity analyst at Morgan Stanley.

“Raising Estimates, Reiterate Our Overweight rating: We are raising our 2021 estimate by $0.71 to $7.84, while our 2022 moves to $7.20 (up $0.10). Our price target climbs $1 to $74, which equates to still solid upside potential, leading us to reiterate our Overweight rating on the stock.”

MetLife Stock Price Forecast

Seven analysts who offered stock ratings for MetLife in the last three months forecast the average price in 12 months of $72.00 with a high forecast of $74.00 and a low forecast of $68.00.

The average price target represents a 26.03% change from the last price of $57.13. All of those seven analysts rated “Buy”, none “Hold” or “Sell”, according to Tipranks.

Morgan Stanley gave the stock price forecast of $74 with a high of $85 under a bull scenario and $50 under the worst-case scenario. The firm gave an “Overweight” rating on the life insurer’s stock.

Several other analysts have also updated their stock outlook. BofA lowered the price objective to $69 from $71. Citigroup lifted the price target to $70 from $69. UBS upped the target price to $73 from $72.

Check out FX Empire’s earnings calendar

MetLife Shares Hit New Record High After Strong Q1 Earnings; Target Price $72 in Best Case

MetLife, one of the largest life insurers in the world, reported better-than-expected earnings in the first quarter of 2021 and said the worst impact of the COVID-19 pandemic was behind, sending shares to a record high on Wednesday.

The New York-based insurer reported net income of $290 million, or $0.33 per share, compared to net income of $4.4 billion, or $4.75 per share, in the first quarter of 2020. Adjusted earnings rose to $2.0 billion, or $2.20 per share, up from adjusted earnings of $1.4 billion, or $1.58 per share, seen in the same period a year ago. That beat the Wall Street consensus estimates of $1.48 per share.

“In the quarter, we were very pleased to return approximately $1.4 billion to shareholders through share repurchases and common stock dividends. We believe the worst impact of the pandemic on our business performance is behind us, and we are well-positioned to create additional value for our stakeholders in the future,” said MetLife President and CEO Michel Khalaf.

The leader of life insurance company said its net investment income rose 74% to $5.3 billion, largely driven by increases in the estimated fair value of certain securities that do not qualify as separate accounts under GAAP and higher variable investment income primarily due to higher private equity returns.

Following the upbeat results, MetLife shares hit an all-time of $65.905 on Wednesday. The stock rose over 39% so far this year.

Analyst Comments

“This quarter’s results clearly received an outsized benefit from strong alternative results, but what impresses us more is the stability and growth in underlying earnings, which should help in our view to drive further upside in the stock,” noted Nigel Dally, equity analyst at Morgan Stanley.

“Operating EPS was $2.20, considerably above both our estimate and the consensus of $1.53. Favorable marks on alternative investments provided more of a boost than expected, contributing over $1 billion to pre-tax earnings above a normal level. Conversely, pandemic-related claims weighed on some divisions, most notably its domestic group insurance operations. Excluding these items, we view the core earnings run-rate potential of the company as being largely in-line with prior expectations.”

MetLife Stock Price Forecast

Nine analysts who offered stock ratings for MetLife in the last three months forecast the average price in 12 months of $66.11 with a high forecast of $72.00 and a low forecast of $54.00.

The average price target represents a 1.07% increase from the last price of $65.41. Of those nine analysts, eight rated “Buy”, one rated “Hold” while none rated “Sell”, according to Tipranks.

Morgan Stanley raised the base target price to $72 from $70 with a high of $83 under a bull scenario and $48 under the worst-case scenario. The firm gave an “Overweight” rating on the life insurer’s stock.

“Following its retail separation, the company is committed to profitable growth while also simplify its operations to reduce earnings volatility. The company also de-risked 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 Dally added.

“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 all segments contributing to earnings growth to a certain extent.”

Several other analysts have also updated their stock outlook. JP Morgan raised the stock price forecast to $66 from $64. UBS initiated with a buy rating and a $72 target price. KBW upped the price target to $68 from $64. Piper Sandler lifted the price objective to $68 from $58. Evercore ISI increased the price target to $65 from $52. RBC raised the target price to $66 from $57.

Check out FX Empire’s earnings calendar

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.