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Long Ideas

Is MetLife a Value Investment?

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The Buffett concept of insurance as a value investment got me wondering about America’s old line life insurance provider MetLife (NYSE: MET).

On the surface, MetLife has many value characteristics including a low price and an unsexy business; life, health, auto, home, dental, disability, and pet insurance. In particular, MetLife shares are cheap they traded at $50.56 on 29 January 2020.

MetLife has a large business with a huge business. MetLife claims to be the number one life insurer in Mexico, Chile, and Latin America, for instance.* In addition, MetLife claims to be the #2 foreign life insurer in Japan and South Korea.

Is MetLife making Money?

Yes, MetLife is making money. MetLife reported a $6.234 billion quarterly gross profit on 30 September 2019.

That gross profit was up from $5.687 billion on 30 June 2019 and $4.548 billion on 30 September 2018. Additionally, MetLife reported a $2.791 billion quarterly operating income on 30 September 2019.

Beyond that MetLife reported a $2.152 billion quarterly operating income on 30 September 2019. That number was up from $880 million 30 September 2018.

MetLife is Generating Cash

Importantly, MetLife is generating cash. It reported an operating cash flow of $4.146 billion, a financing cash flow of $2.237 billion, and an ending cash flow of $1.017 billion for the quarter ending on 30 September 2019.

Therefore, MetLife is getting a lot of cash from its monthly premiums. Cash from premiums is the reason Warren Buffett invests in insurance

Famously Buffett calls insurance premiums float. In Buffett’s world, float is a steady stream of cash a company can quickly tap for a variety of purposes. Insurance companies generate float because policyholders have to pay their premiums to get their benefits.

MetLife had a lot of float in the form of $19.452 billion in cash and short-term investments on 30 September 2019. That cash was up from $38.957 billion in cash and short-term investments on 30 June 2019.

MetLife can take in lots of cash at once. It reported $14.506 billion in ending cash on 31 March 2019.

MetLife taps new Sources of Float

MetLife (NYSE: MET) is tapping new sources of float. For instance, MetLife is buying PetFirst Healthcare LLC a pet-health insurance provider.

MetLife is buying PetFirst because the Pet Health Insurance business is growing fast. A MetLife press release claims the pet-insurance market grew at a rate of 20% in 2019.

The pet-health insurance market could be huge. MetLife estimates 85 million American households own pets. Plus, MetLife claims those households spent $18 billion on veterinary care in 2018.

Is MetLife a Growth Stock?

Strangely, the 150-year-old MetLife could be a growth stock. MetLife’s quarterly revenues grew from $16.289 billion in September 2018 to September 2019, for instance.

Impressively, Stockrow estimates MetLife had a 14.67% revenue growth rate in the quarter ending on 30 September 2019. However, MetLife had a -17.41% negative growth rate for the quarter ending on 30 June 2019.

That’s impressive for a company founded in 1868 as the Metropolitan Life Insurance Company. However, New York businessmen organized a predecessor to MetLife called the National Union Life and Limb Insurance Company in 1863. National Union Life insured Union soldiers fighting in the American Civil War.

Is MetLife a Good Dividend Stock?

MetLife (NYSE: MET) is a good dividend stock for its price. For instance, MetLife will pay a 44₵ quarterly dividend on 2 February 2020.

Furthermore, Dividend.com credited MetLife with a dividend yield of 3.4%, an annualized payout of $1.76, and a payout ratio of 28.93% on 29 January 2020. Additionally, Dividend.com credits MetLife with seven years of dividend growth.

If you are looking for a safe and cheap insurance stock with growth potential that pays a good dividend. I think MetLife is a good choice. I call this old-line insurance company a classic value investment.

*See the MetLife Global Corporate Fact sheet for details:  https://s23.q4cdn.com/579645270/files/doc_downloads/factsheets/2019/09/2019-MetLife-Corporate-Factsheet-(UPDATED).pdf