MetLife (MET) Stock Could Be 47% Undervalued On Excess Returns

MetLife has delivered a strong run for shareholders in recent years, which naturally puts the focus on whether the company’s returns on capital are pulling their weight at today’s price. The question now is how well that share performance lines up with what the business is actually earning on the money it puts to work.

• Over the past 3 years the stock has gained about 71.0%, which makes it important to check whether the underlying returns on capital are strong enough to support that kind of wealth creation.
• MetLife’s model ties growth closely to how effectively it invests policyholder float and its own capital, so the quality and consistency of those returns may support or limit what investors are willing to pay for the shares.
• What if you looked at MetLife through its earnings instead? See why MetLife's 17.4x P/E tells a different valuation story.

The issue now is whether the returns MetLife earns on its capital are enough to justify where the stock is trading today.

If you want to test the same question you are asking of MetLife against a broader group, compare its record to companies in the 31 resilient stocks with low risk scores.

Is MetLife Still Cheap on Excess Returns?

The Excess Returns model asks whether MetLife is earning more on shareholder capital than it costs to fund that capital, then capitalises that gap over time. For MetLife, the inputs point to a business where profitability on equity sits comfortably above its funding cost.

Book value is $43.03 per share and the stable book value estimate rises to $53.11 per share, so the model is working off a balance sheet that analysts expect to keep building. Stable EPS of $8.68 per share, sourced from 8 analysts, against a cost of equity of $3.96 per share leaves an excess return of $4.72 per share. That outcome lines up with an average return on equity of 16.35%, which is ahead of the model’s implied charge for using capital. On those assumptions, the Excess Returns valuation sits substantially above the current share price of $94.35. This indicates that the market price does not fully reflect what this framework suggests about MetLife’s long run earnings power. Find out what MetLife could be worth using our Excess Returns estimate.

The MetLife Narrative: What Would Justify Today's Price?

MetLife’s valuation gap raises a natural question for you as a shareholder: which future path would need to play out in order for today’s price to look either too low or too demanding? Simply Wall St Narratives sit on the Community page and map those possible paths, since each one links its suggested value to a specific view on where MetLife’s growth, profitability and risk profile could head next, giving you a reference point as new information arrives.

One of the top community narratives on MetLife: 10% undervalued

"The main factor that has to go right is continued execution on the New Frontier plan, including expense discipline, technology and AI deployment, and international growth…"

Discover why this Narrative puts MetLife at 10% undervalued.

MetLife’s value still hinges on one unanswered issue

Figures on book value and excess returns only tell part of the story, because the people setting MetLife’s priorities and how they are rewarded can pull those numbers in very different directions over time. See who runs MetLife and how they are paid.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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