Atlantic Equities analyst John Heagerty upgraded MetLife Inc. to "overweight" from "neutral" in view of what he described as the company's dramatic business model transformation and the stock's current pricing, which has trended downward and is undervalued, he said.
Heagerty wrote that the insurer has shifted focus toward "faster-growing, more capital-lite" operations. The company has yet to fully return the proceeds from the Brighthouse Financial Inc. spinoff to shareholders, with roughly $3 billion of buybacks planned for 2018, he noted.
The analyst expects pension risk transfers to continue growing rapidly and rising employment to boost group life sales as consumer confidence grows. The company's share price has a strong correlation with the 10-year Treasury yield, which is rising due to inflation, tax reform, a rising Fed funds rate and the unwinding of quantitative easing, Heagerty wrote.
The analyst also noted that the share price has struggled to recover since falling after the company disclosed that it had released some group annuity reserves too early. The stock's drop in the wake of that announcement cost MetLife about $4.4 billion in market capitalization, and it now trades below estimated 2019 book value per share, he wrote.
Heagerty raised the price target to $60.00 from $55.00. His EPS estimates are $4.92 for 2018, $5.43 for 2019 and $6.05 for 2020.