With low rates and an uncertain regulatory environment still troubling investors, MetLife (NYSE:MET) shares have been on a slow boat to nowhere over the past year. Operating performance continues to improve faster than analysts expect, though, and MetLife's strong international operations should help build value in the coming years. While the risk of a MetLife position is asymmetrical (there's a higher likelihood of something going much worse than much better), I do believe these shares are undervalued and priced to deliver good returns over the long term.

Beginner's Guide To CQG Integrated Client Trading Platform: CQG Integrated Client Trading Platform is a robust trading platform that takes time to learn and to be able to take full advantage of its functionality.

Good Operating Performance Underneath It All
MetLife's fourth-quarter earnings aren't exactly transparent to investors who don't spend a lot of time with financial statements of financial companies. That said, looking through the numbers and reversing the special/one items, the underlying performance was pretty solid.

Operating revenue rose nearly 12%, with broad growth across the business. Premiums were up almost 16% overall, and the company saw single-digit growth in retail and group/voluntary/worksite, coupled with good growth in Asia and a somewhat disappointing growth (but growth all the same) in Latin America.

Looking at operating income, MetLife saw a strong 15% growth in core earnings - stronger than even most of the bullish analysts projected. Earnings in the United States rose 23%, with a very strong performance in retail (up 43%), while international climbed 9% as strong growth in Latin America and Europe offset a sluggish earnings growth in Asia.

SEE: Understanding The Income Statement

Switching Over to Less Capital-Intense Businesses
Investors may be surprised to see the 7% decline in individual life and the 51% drop in variable annuity sales this quarter. This isn't because the company is losing business to Prudential Financial (NYSE:PRU), Lincoln National (NYSE:LNC), AXA (OTC:AXAHY) or AIG (NYSE:AIG) to any meaningful extent. Rather, the company has made the deliberate choice to lean away from these capital-intensive businesses. MetLife is still going to have a meaningful market presence here, but running down these businesses a bit should reduce the volatility of reported earnings and improve capital turnover.

Getting Bigger in Chile
The company also recently announced that it had reached an agreement with Banco Bilbao Vizcaya (NYSE:BBVA) to acquire its majority stake of Chilean pension fund administrator AFP Provida (NYSE:PVD) and tender for the publicly-traded shares. All in all, this will cost MetLife about $2 billion. At that price, it is paying about 4.4% of the company's assets under management - less than the 4.7% Principal Financial (NYSE:PFG) paid for AFP Cuprum.

This deal makes sense on many levels for MetLife. First, it further expands the company's exposure to international markets, particularly the solid growth market of Chile. Second, the basic business of Provida should be pretty familiar to MetLife - Provida collects contributions from Chilean workers, invests them and collects fees for the service (and must provide certain regulatory minimum returns). While Provida is more of the "every man's pension provider" (as opposed to a higher-end clientele at Cuprum), it is the largest such provider in Chile, where contributions are mandatory.

Debanking Is a Big Step, but There's Still a Lot of Unknowns
MetLife followed up its earnings release by announcing that the Fed has now officially approved the company's application to deregister as a bank (having sold its retail bank operations to General Electric's (NYSE:GE) GE Capital).

This doesn't get MetLife completely out of the woods, though. The company is still likely going to be deemed a "systematically important financial institution" (or SIFI), and the rules are still in flux for non-bank SIFIs like MetLife and, presumably, Prudential. While I do believe that MetLife will ultimately get approval to return more capital to shareholders (dividends and buybacks), the timing could prove disappointing and shares could be weak in the interim.

SEE: A Breakdown Of Stock Buybacks

The Bottom Line
I'm a fan of MetLife, though I fully expect that it will take a while for the value to emerge. I am a little concerned about the rate environment pressuring returns, as well as the company's fairly lackluster underwriting margins of late. On the other hand, I think the company's moves to reprioritize certain lines of business are good ones, and I do believe the company's large exposure to international market will help bulwark growth - particularly down the line as aging Americans increasingly live off of (and thus withdraw from management) their savings and investments.

MetLife still trades at a meaningful discount to book value and tangible book value, as well as a substantially discount to the long-term value implied by an 11 to 12% return on equity. What's more, I think MetLife is passed the crisis and back to more of a low-rate cyclical sluggishness. While I don't think MetLife is going to be a stunning performer in 2013, these are value-priced shares that could reward patient investors.

At the time of writing, Stephen D. Simpson did not own any shares in any company mentioned in this article.

Related Articles
  1. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI USA Minimum Volatility

    Learn about the iShares MSCI USA Minimum Volatility exchange-traded fund, which invests in low-volatility equities traded on the U.S. stock market.
  2. Stock Analysis

    Should You Follow Millionaires into This Sector?

    Millionaire investors—and those who follow them—should take another look at the current economic situation before making any more investment decisions.
  3. Professionals

    What to do During a Market Correction

    The market has corrected...now what? Here's what you should consider rather than panicking.
  4. Mutual Funds & ETFs

    ETF Analysis: Vanguard Mid-Cap Value

    Take an in-depth look at the Vanguard Mid-Cap Value ETF, one of the largest and most popular mid-cap funds in the U.S. equity space.
  5. Mutual Funds & ETFs

    ETF Analysis: Schwab US Broad Market

    Take an in-depth look at the Schwab U.S. Broad Market ETF, an incredibly low-cost fund based on a wide selection of the U.S. equity market.
  6. Professionals

    Tips for Helping Clients Though Market Corrections

    When the stock market sees a steep drop, clients are bound to get anxious. Here are some tips for talking them off the ledge.
  7. Stock Analysis

    The Safest Stocks You Can Invest in Right Now

    These stocks are likely to hold up better than others in a bear market, but there's a twist.
  8. Investing Basics

    5 Reasons to Expect Lower Stock Returns

    Lower stock returns are likely here to stay for some time. Here are five reasons why.
  9. Investing Basics

    What to Cut From Your Portfolio Right Now

    Owning stocks may shortly become too scary for your portfolio. Here's why, and here are some alternatives.
  10. Personal Finance

    Careers: Equity Research Vs. Investment Banking

    Equity research is sometimes viewed as the unglamorous, lower-paid cousin to investment banking. In this article, we compare the two careers.
  1. Hard-To-Sell Asset

    An asset that is extremely difficult to dispose of either due ...
  2. Sucker Yield

    When an investor has essentially risked all of his capital for ...
  3. PT (Perseroan Terbatas)

    An acronym for Perseroan Terbatas, which is Limited Liability ...
  4. Ltd. (Limited)

    An abbreviation of "limited," Ltd. is a suffix that ...
  5. BHD (Berhad)

    The suffix Bhd. is an abbreviation of a Malay word "berhad," ...
  6. Impact investing

  1. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  2. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  3. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  4. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  5. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>
  6. What happens to the shares of stock purchased in a tender offer?

    The shares of stock purchased in a tender offer become the property of the purchaser. From that point forward, the purchaser, ... Read Full Answer >>

You May Also Like

Trading Center

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!