MetLife Stock Is Likely To Trade Sideways In The Near Term
We believe there may be better places for your money than MetLife’s stock (NYSE: MET) at the present time. MetLife, a leading provider of insurance, employee benefits, and financial services, trades at $49 currently and has gained 7% in value so far this year. It traded at a pre-Covid high of $52 in February 2020 and is 5% above that level now. Also, MET stock has gained 110% from the low of $24 seen in March 2020, after the multi-billion dollar stimulus package announced by the U.S. government, which has helped the stock market recover to a large extent. The stock is leading the broader markets by a huge margin (S&P 500 is up about 70% since March lows), as investors are positive about MET’s earnings beat in the third quarter of 2020.
Although MetLife has reported better than expected results in the recent quarter, there is a mismatch between its stock and revenue growth – its revenues of $16 billion were still 14% less than Q3 2019. Further, the insurance giant’s cumulative nine months revenues have declined by 8% y-o-y, mainly driven by a drop in net investment income and earned premiums. However, as the economy moves toward normalcy, we expect the premium amount to improve in the coming months. But, the net investment income is expected to continue to suffer in the coming months, due to the lower interest environment which is unlikely to see immediate recovery. In view of the recent rally in MetLife stock since late March, we believe that the stock has limited room for growth in the near future (back to its pre-Covid peak) and will largely trade sideways. Our conclusion is based on our detailed analysis of MetLife’s stock performance during the current crisis with that during the 2008 recession in an interactive dashboard analysis.
2020 Coronavirus Crisis
- 12/12/2019: Coronavirus cases first reported in China
- 1/31/2020: WHO declares a global health emergency.
- 2/19/2020: Signs of effective containment in China and hopes of monetary easing by major central banks helps S&P 500 reach a record high
- 3/23/2020: S&P 500 drops 34% from the peak level seen on Feb 19, as Covid-19 cases accelerate outside China. Doesn’t help that oil prices crash in mid-March amid Saudi-led price war
- From 3/24/2020: S&P 500 recovers 68% from the lows seen on Mar 23, as the Fed’s multi-billion dollar stimulus package suppresses near-term survival anxiety and infuses liquidity into the system.
In contrast, here’s how MET and the broader market performed during the 2007/2008 crisis.
Timeline of 2007-08 Crisis
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- 10/1/2007: Approximate pre-crisis peak in the S&P 500 index
- 9/1/2008 – 10/1/2008: Accelerated market decline corresponding to Lehman bankruptcy filing (9/15/08)
- 3/1/2009: Approximate bottoming out of the S&P 500 index
- 1/1/2010: Initial recovery to levels before the accelerated decline (around 9/1/2008)
MetLife vs S&P 500 Performance Over 2007-08 Financial Crisis
MetLife stock declined from levels of around $63 in October 2007 (the pre-crisis peak) to roughly $16 in March 2009 (as the markets bottomed out), implying that the stock lost around 74% of its value from its approximate pre-crisis peak. This marked a sharper drop than the broader S&P, which fell by about 51%.
However, MET recovered strongly post the 2008 crisis to about $32 in early 2010 – rising by 91% between March 2009 and January 2010. In comparison, the S&P bounced back by about 48% over the same period.
MetLife’s Fundamentals in Recent Years Look Strong
MetLife revenues grew by 14% from $60.8 billion in 2015 to $69.6 billion in 2019, primarily led by growth in the U.S insurance segment – it contributes around 51% of the company’s revenues in 2019. Similarly, the company’s net income improved from $5.4 billion to $5.9 billion over the same period. The company’s Q3 2020 revenues were 14% below the year-ago period and its EPS figure decreased from $2.31 to $0.70.
Phases of Covid-19 crisis:
- Early- to mid-March 2020: Fear of the coronavirus outbreak spreading rapidly translates into reality, with the number of cases accelerating globally
- Late-March 2020 onward: Social distancing measures + lockdowns
- April 2020: Fed stimulus suppresses near-term survival anxiety
- May-June 2020: Recovery of demand, with the gradual lifting of lockdowns – no panic anymore despite a steady increase in the number of cases
- July-November 2020: Weak Q2 and Q3 results, but continued improvement in demand and progress with vaccine development buoy market sentiment
Going by the historical performance and in view of the strong rally in MetLife’s stock since late March, we believe that the stock has little room for growth (5% upside) in the near future, back to the pre-Covid-19 peak.
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