Metlife, Company Analysis, Essay Example

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On April 22, 2004, the MetLife Board announced dividend for common stock in second quarter. The dividend was at $0.35 per share. This marked a $0.075 increase from the previous quarterly common stock dividends issue (MarketWatch). This was aimed at increasing the overall shareholder value.

MetLife continues to introduce new and diverse products for its clients such as the Voluntary Retiree Life Insurance launched on April 8, 2014 (Damodaran). This insurance product is meant for those clients entering retirement or are already in retirement.

MetLife Inc. is a constantly growing and evolving company that seeks to diversify in its services and products in all markets. The company manages to achieve this through acquisitions and mergers that have proven to be pivotal to the company’s success. In September 2013, MetLife entered into a joint venture with Thayer Lodging Group to purchase the Hilton Los Cabos Beach & Golf Resort, a 365-room resort located in Lucas, Mexico. MetLife subsidiaries purchased the 64.3% stake in Administradora de Fondos de Pensiones Provida SA (AFP Provida) initially held by Banco Bilbao Vizcaya Argentaria SA (Damodaran).

Company Stock Performance

MetLife Common stock has seen a rapid increase in value since May 2013. However, it is most notable that every instance of a merger, acquisition or joint-venture has led to the momentary drop in the value of the company’s common stock. One instance is the purchase of the 64.3% stake in stake in Administradora de Fondos de Pensiones Provida SA (AFP Provida) initially held by Banco Bilbao Vizcaya Argentaria SA (Damodaran). The company’s common stock value decreased and experienced a period of rapid highs and lows.

Accounting Ratios

The following is a summary of the company’s current account ratios

Return on Equity (ROE)

This ratio is a measure of a company’s profitability by deriving the amount of profit that the company can make using shareholder’s or investor’s financial resources. The company’s ROE is at 5.15% which can be considered as a relatively good investment (YahooFinace!). Conventionally good and high-profit companies have an ROE that lies between 15% and 20%. However, the insurance market is exceptional

Price/Book Ratio

The Price-to-Book ratio is used to compare the value of a company’s stock in the market against its value in its books. While this varies by industry, MetLife’s Price/Book ratio is well within good performance within the insurance industry. The company has diversified into several soft markets so as to avoid taking on risks that cannot be sufficiently covered by the premiums paid in by the clients.

Price/Earnings Ratio

This ratio values the company’s current or prevailing share price against the per-share earnings of the same share. This is essential in indicating what investors should expect from a given stock before purchasing it. With a price-to-earnings ratio of 17.9, MetLife can be considered as fair value.

Price/Sales Ratio

This ratio compares the value of a company’s stock against the revenue the company generates from its activities. This ratio fundamentally obtains the value of every dollar generated in revenue or sales. The most ideal Price/Sales ratio value for an insurance company, considering the current market conditions, should lie between 0.9 and 1.2. MetLife’s Price/Sales ratio at 0.9, qualifies as good investment opportunity for investors (Damodaran).

Company Description

MetLife, Inc. commonly known as MetLife is a company that provides insurance, employee benefit programs and annuities to over 90 million clients all over the world. The span of operations for MetLife spans over 50 countries where it has numerous subsidiaries. Some of the major operational areas include the United States, Asia Pacific, Latin America, Japan, the Middle East and Europe. MetLife’s products and services are categorized in 6 major areas; Auto & Home and Corporate Benefit Funding, Insurance Products and Retirement Products. The company’s business in the United States focuses on providing financial and insurance services products. These include auto, life, disability, homeowner and dental insurance.

In terms of size, MetLife is ranked the 60^th biggest company on the globe. This ranking is based on sales revenue and net profit. MetLife last recorded $44.78 billion in sales, generating $4.71 billion in terms of profit. The company’s assets amount to $481.65 billion creating a market value of $37.94 billion (Forbes).

Personal Opinion

MetLife offers a good opportunity for any employee to realize the limits in the different fields or professions encompassed within the organization. The company has diversified its operation by concentrating on different industries to ensure that all the risks that the company takes on can be covered by supplementing the premiums paid by the clients with business in soft industries. The company has ventured into real estate, financial and consultative fields.

It is also interesting that the company has just announced the increase their dividend pay-out from $0.275 per share to $0.35 per share for the second quarter. The increased dividend pay-out is aimed at increasing shareholder value as the company has realized a considerable increase in profits within the past financial year.

Competitors

AIG

MetLife faces competition from high-capital venture insurance companies. In the United States Market, the insurance industry was largely dominated by MetLife. However, AIG has topped MetLife in terms of revenue in recent years, making AIG the biggest competitor for MetLife. AIG currently makes $11.90 billion in terms of profit, compared to $4.71 billion that MetLife realizes (Forbes). The most notable difference is the fact that AIG has assets worth $843.40 while MetLife has assets worth $481.65 (Forbes).

Prudential Financial

This is a close rival if MetLife. It last made $3.54 billion in profits from $31.71 billion in sales. The company currently has assets worth $417.78 billion and has a market value of $39.62 billion (Forbes). Prudential Financial has seen a surge in the number of clients as a result of diversified investment ventures they have undertaken.

Future Outlook

The company is set to see an increase in revenue and profitability. This is because the company has redefined the value of shareholders through the increased dividend pay-out. They however face stiff competition from Prudential Financial that is slowly becoming the ideal insurance company for the upper middle class in the society.

The financial woes and wrangles within AIG may provide an opportunity for MetLife to recapture certain segments in the market. It is essential that MetLife management keep up with their competition.

MetLife common stock is highly profitable and would recommend investing in this stock. The stock has been performing well recently after the recent joint ventures with Thayer Lodging Group to purchase the Hilton Los Cabos Beach & Golf Resort, a 365-room resort located in Lucas, Mexico (Damodaran). This stock is predicted to record further improvement in the next quarter after the introduction of new insurance products.

References

Damodaran, Aswath. “Revenue Multiples by Sector.” 10 January 2014. NYU Stern School of Business. Internet Source. 24 April 2014. <http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/psdata.html>.

Forbes. “The World’s Biggest Public Companies.” 3 January 2014. Forbes. Internet Source. 24 April 2014. <http://www.forbes.com/lists/2006/18/United_States_Rank_1.html>.

MarketWatch. “MetLife Inc.” 25 April 2014. MarketWatch. Internet Source. 25 April 2014. <http://www.marketwatch.com/investing/stock/met/profile>.

YahooFinace! “MetLife, Inc. (MET).” 25 April 2014. YahooFinance. Internet Source. 25 April 2014. <http://finance.yahoo.com/q/ta?s=MET+Basic+Tech.+Analysis>.