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.

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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.

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