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Metlife vs. Prudential: Which is Better Ahead of Q3 Earnings?
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The insurance industry grabbed the spotlight in recent times in the wake of the terrifying hurricanes hitting the United States this year. Per catastrophe modeler AIR Worldwide, the insured loss estimates for Hurricane Irma could range between $25 billion and $35 billion and between $40 billion and $85 billion for Hurricane Maria. Other parts of the world also have not been spared their share of nature’s horrors, with Mexico facing the wrath of two successive earthquakes recently.
Such huge payouts are likely to hit the bottom lines of insurers grievously. But it’s not all gloom and doom for the sector with the stage set for the Fed to tighten rates. Despite the Fed’s reluctance to raise interest rates at its September meeting, rates have continued to improve, albeit at a slower pace, courtesy of the three hikes made since December 2016. Investment income has also markedly improved from historical lows. (Read: 4 Insurance Stocks to Dodge as Q3 Earnings Season Kicks Off)
Other major earnings scheduled during this week include Facebook, Inc. and Apple Inc. (AAPL - Free Report) .
Price Performance
Despite recent hiccups, the broader industry has turned in a creditable performance over the last one year, gaining 27.5%. Meanwhile, Prudential has gained 32.6% over the same period, outperforming the Zacks Multi-Line Insurance industry as well as MetLife, which has increased 15.3%.
Valuation
Due to the various difficulties related to valuing insurance companies, the Price to Book ratio is the preferred metric for the industry. Problems involving valuation include the lack of clarity surrounding debt levels and the near absence of depreciation and capital expenditure. Instead, book value is utilized which includes the value of stocks, bonds and other securities which provide a fairer representation of value since active markets for them exist.
Coming to the two insurance heavyweights, both Metlife and Prudential are undervalued relative to the broader industry, which has a P/B value of 1.46. However, MetLife holds the edge here, with a lower P/B value of 0.82 compared to Prudential’s value of 0.98.
Return on Equity
This metric is appropriate when the goal is to compare the profitability of companies that belong to the same industry. In the case of insurers, Return on Equity or ROE gauges the amount of income generated as a percentage value of the shareholders equity. An increase in ROE levels is an indicator of the effective use of invested capital, since the return on such capital has increased.
Here, both Prudential and MetLife have higher ROE values than the broader industry for which the metric stands at 7.7%. But Prudential clearly wins this round with an ROE value of nearly 9% which outperforms MetLife’s ROE of 8.5%.
Debt to Equity
This is comprehensive leverage metric, utilized to measure the financial health of companies within the same industry. Insurers are primarily funded by investors, customers as well as corporate debt holders. This is why their capital structure is strikingly different from other sectors which produce goods or are engaged in offering other kinds of services.
MetLife and Prudential both have D/E ratios lower than the broader industry, for which the value comes in at 47.6%. However, MetLife probably has a lower level of associated risk, given that its D/E ratio of 34.7% is lower than Prudential’s level of 39.9%.
Dividend Yield
Both Prudential and MetLife have offered a superior dividend yield over the last one year period compared to the broader industry, which has returned 1.8% over this period. However, with a dividend yield of 3%, MetLife is ahead of Prudential on this count, but only just, since Merck has offered a dividend yield of 2.7% over the same period.
Earnings History, ESP and Estimate Revisions
Considering a more comprehensive earnings history, MetLife has delivered positive surprises in all the prior four quarters with an average earnings surprise of +7.4%. In comparison, Prudential delivered earnings beat in three of the trailing four quarters, with an average positive earnings surprise of -1%. But this figure is primarily attributable to last quarter’s negative earnings surprise of 22.59%. Since then, the company has expanded product offerings and broadened its distribution capabilities, factors which are likely to benefit Prudential’s third-quarter results.
When considering Earnings ESP, however, Prudential is a clear winner. With an ESP of 0%, MetLife is at a disadvantage, since Prudential holds a value of +0.0.7%. Additionally, Prudential’s Zacks Consensus Estimate for the current year has increased by 0.4% over the last 30 days, while MetLife’s value has declined by 3.5% over the same period. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Conclusion
Our comparative analysis shows that MetLife holds an edge over Prudential when considering a more comprehensive earnings history as well as in the case of Price to Book and Debt to Equity values. It also holds a slight advantage on the dividend front. However, when considering price performance, estimate revisions and Return on Equity values, Prudential is clearly the better stock.
What clinches the case in favor of Prudential at this point in time is its superior Zacks Rank #2, compared to MetLife’s Zacks Rank #3. Additionally, it sports a superior ESP value of +0.07%, compared to MetLife’s reading of 0%. This is why it may be better to bet on Prudential over MetLife as they prepare to report earnings.
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Metlife vs. Prudential: Which is Better Ahead of Q3 Earnings?
The insurance industry grabbed the spotlight in recent times in the wake of the terrifying hurricanes hitting the United States this year. Per catastrophe modeler AIR Worldwide, the insured loss estimates for Hurricane Irma could range between $25 billion and $35 billion and between $40 billion and $85 billion for Hurricane Maria. Other parts of the world also have not been spared their share of nature’s horrors, with Mexico facing the wrath of two successive earthquakes recently.
Such huge payouts are likely to hit the bottom lines of insurers grievously. But it’s not all gloom and doom for the sector with the stage set for the Fed to tighten rates. Despite the Fed’s reluctance to raise interest rates at its September meeting, rates have continued to improve, albeit at a slower pace, courtesy of the three hikes made since December 2016. Investment income has also markedly improved from historical lows. (Read: 4 Insurance Stocks to Dodge as Q3 Earnings Season Kicks Off)
With sector majors Prudential Financial, Inc. (PRU - Free Report) and MetLife, Inc. (MET - Free Report) both scheduled to report on Nov 1, this may be a good time to consider which of these is a better stock. While MetLife has a Zacks #3 (Hold), Prudential has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Other major earnings scheduled during this week include Facebook, Inc. and Apple Inc. (AAPL - Free Report) .
Price Performance
Despite recent hiccups, the broader industry has turned in a creditable performance over the last one year, gaining 27.5%. Meanwhile, Prudential has gained 32.6% over the same period, outperforming the Zacks Multi-Line Insurance industry as well as MetLife, which has increased 15.3%.
Valuation
Due to the various difficulties related to valuing insurance companies, the Price to Book ratio is the preferred metric for the industry. Problems involving valuation include the lack of clarity surrounding debt levels and the near absence of depreciation and capital expenditure. Instead, book value is utilized which includes the value of stocks, bonds and other securities which provide a fairer representation of value since active markets for them exist.
Coming to the two insurance heavyweights, both Metlife and Prudential are undervalued relative to the broader industry, which has a P/B value of 1.46. However, MetLife holds the edge here, with a lower P/B value of 0.82 compared to Prudential’s value of 0.98.
Return on Equity
This metric is appropriate when the goal is to compare the profitability of companies that belong to the same industry. In the case of insurers, Return on Equity or ROE gauges the amount of income generated as a percentage value of the shareholders equity. An increase in ROE levels is an indicator of the effective use of invested capital, since the return on such capital has increased.
Here, both Prudential and MetLife have higher ROE values than the broader industry for which the metric stands at 7.7%. But Prudential clearly wins this round with an ROE value of nearly 9% which outperforms MetLife’s ROE of 8.5%.
Debt to Equity
This is comprehensive leverage metric, utilized to measure the financial health of companies within the same industry. Insurers are primarily funded by investors, customers as well as corporate debt holders. This is why their capital structure is strikingly different from other sectors which produce goods or are engaged in offering other kinds of services.
MetLife and Prudential both have D/E ratios lower than the broader industry, for which the value comes in at 47.6%. However, MetLife probably has a lower level of associated risk, given that its D/E ratio of 34.7% is lower than Prudential’s level of 39.9%.
Dividend Yield
Both Prudential and MetLife have offered a superior dividend yield over the last one year period compared to the broader industry, which has returned 1.8% over this period. However, with a dividend yield of 3%, MetLife is ahead of Prudential on this count, but only just, since Merck has offered a dividend yield of 2.7% over the same period.
Earnings History, ESP and Estimate Revisions
Considering a more comprehensive earnings history, MetLife has delivered positive surprises in all the prior four quarters with an average earnings surprise of +7.4%. In comparison, Prudential delivered earnings beat in three of the trailing four quarters, with an average positive earnings surprise of -1%. But this figure is primarily attributable to last quarter’s negative earnings surprise of 22.59%. Since then, the company has expanded product offerings and broadened its distribution capabilities, factors which are likely to benefit Prudential’s third-quarter results.
When considering Earnings ESP, however, Prudential is a clear winner. With an ESP of 0%, MetLife is at a disadvantage, since Prudential holds a value of +0.0.7%. Additionally, Prudential’s Zacks Consensus Estimate for the current year has increased by 0.4% over the last 30 days, while MetLife’s value has declined by 3.5% over the same period. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Conclusion
Our comparative analysis shows that MetLife holds an edge over Prudential when considering a more comprehensive earnings history as well as in the case of Price to Book and Debt to Equity values. It also holds a slight advantage on the dividend front. However, when considering price performance, estimate revisions and Return on Equity values, Prudential is clearly the better stock.
What clinches the case in favor of Prudential at this point in time is its superior Zacks Rank #2, compared to MetLife’s Zacks Rank #3. Additionally, it sports a superior ESP value of +0.07%, compared to MetLife’s reading of 0%. This is why it may be better to bet on Prudential over MetLife as they prepare to report earnings.
Wall Street’s Next Amazon
Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It’s a once-in-a-generation opportunity to invest in pure genius.
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