3 Reasons Why MetLife's Stock Could Rise

Source: Company

MetLife (NYSE: MET  ) has a lot of things going for itself: The insurance company serves 90 million customers and should see further growth in the rapidly growing emerging market segments of its business. Ever since MetLife has announced to focus more on pushing its emerging markets business, the company was able to deliver solid business results in this geography.

Furthermore, MetLife is keen on delivering substantial cost savings until 2016 in order to drive profitability, which could be critical in providing tailwinds for MetLife's stock price in the coming quarters.

MetLife also trades relatively cheaply compared to its own historical valuation and compared to peers. All of these reasons justify a material reassessment of MetLife's value proposition and should ultimately lead to higher share prices for this insurance franchise.

1. Focus on emerging markets growth
Markets abroad are becoming more and more important for companies, not only in the insurance market, to deliver incremental earnings growth. Though Western markets allow for growth, the opportunities clearly are in developing countries where there is a lot of room to increase market penetration with financial products.

Source: MetLife Investor Presentation, June 10, 2014

MetLife has repeatedly guided for a higher importance of emerging markets going forward and stipulated its ambition to grow this geography to 20% of operating earnings by 2106.

MetLife's earnings growth has already benefited from some vital boosts from emerging markets lately:

Operating earnings in its European, Middle Eastern, and African business (with the exclusion of Western Europe) grew 16.1% on average over the last two full financial years to $287 million and continue to see further momentum in this geography going forward.

MetLife's Latin American business is also doing fairly well and produced average operating earnings growth of 7.1% to $590 million in 2013 thanks to its market leading position in the life insurance business.

Considering the demonstrated growth rates in its EMEA business, I believe this geography will continue to represent the best growth opportunities for MetLife. Its Asian business certainly has a lot of room to develop, too, and significant insurance opportunities can be found in Asian markets with young populations and healthy need for insurance solutions according to the 2014 Ernst & Young Asia-Pacific insurance outlook.

2. Focus on cost savings
In addition to increasing revenues and earnings from its emerging market operations, MetLife has stipulated its goal to deliver $1 billion in gross expense savings until 2016.

Source: MetLife Investor Presentation, June 10, 2014

Though I like to see value generation happening more on the revenue side of the equation, cost cuts certainly indicate the commitment with which MetLife's management team wants to deliver a competitive cost structure.

Cost savings should ultimately lead to higher returns on equity, although they are already looking good.

In 2013, MetLife's operating return on equity stood at 11.9% and has significantly improved over the 11.2% produced in 2012 and the 10% achieved in 2011.

3. Low valuation
Yet another reason why I believe MetLife is well positioned for further valuation growth relates to its low relative valuation.

Investors who are looking for bargain-priced insurance companies should ultimately gravitate to MetLife. The insurance company still trades at a discount to book value and compares favorably against its closest competitors American International Group and Prudential Financial.



Moreover, when put into proper historical context, it becomes clear that MetLife has traded at much higher price to book value multiples in the past.

Should MetLife deliver on its ambitious cost savings plan and succeed in producing further earnings growth in the coming quarters, the stock could certainly catch up and might even trade at significant premiums to book value as the increasing profitability of the insurance company is acknowledged by the market.

The Foolish bottom line
MetLife does all the right things to turbocharge earnings growth and profitability as it accentuates the highly attractive emerging markets to deliver earnings momentum over the next couple years.

MetLife's focus on creating value for shareholders by cutting expenses should also translate into higher return measures as well as share prices as the market begins to appreciate the efficiency gains the insurance company has made.

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