MetLife Moving Past Some Self-Inflicted Challenges And Toward Unlocking Value

MetLife's (MET) performance over the past year hasn't been all that good, but it has at least been better than that of many of its peers. Although MetLife has done a lot to clean up and improve its business, the company still has a track record of inconsistent results (often punctuated by large charges) and headwinds like lower returns on equity from its run-off business and spread compression in its U.S. retirement business.

I think expectations for MetLife are low and that the shares could be positioned to outperform as a result. The company's earnings growth outlook is rather modest, and that is a concern, but I do believe book value growth should improve from here and exceed core earnings growth. If and as that happens, the multiple should expand and MetLife should get more of its due, but investors should appreciate that this name is highly likely to be more tortoise than hare.

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MetLife Moving Past Some Self-Inflicted Challenges And Toward Unlocking Value

Seeking Alpha: Struggling Genworth Not Close To Earning Its Cost Of Equity

There are many ways to analyze, evaluate, and value companies and they all have their particular advantages and disadvantages. As a general rule, though, I don't think many investors will argue that in order for a stock to be an attractive long-term investment candidate, the company needs to earn its cost of equity (as opposed to its overall cost of capital). That's a big problem for Genworth (NYSE:GNW), as this struggling insurance company is likely looking at many years of single-digit returns on equity versus a cost of equity that is in the double digits.

Management has lost a lot of credibility and goodwill with its various false starts and head fakes as it has tried to repair its struggling long-term care business and improve its life and annuity operations. The latest plan, centering around an attempt to isolate that troubled LTC business, makes some sense, but successfully executing the plan is far from certain. I think the company can generate the cash it needs to manage its 2018 debt maturities, but the risks to shareholders are mounting and although mid single-digit ROEs can support a fair value that's 40% or more above today's price, more stress to the balance sheet could conceivably wipe out much (if not all) of the value.

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Struggling Genworth Not Close To Earning Its Cost Of Equity

Seeking Alpha: Separating The 'Coulds' And 'Woulds' At Genworth

It's been over a year since I wrote about Genworth (NYSE:GNW), and a lot has happened since. The roughly 50% drop tells you a lot of what you need to know about how things have gone, particularly as the "some reasons to worry" that I mentioned in regards to the company's reserve situation in long-term care exploded into a capital-destroying crisis. Along the way, management has lost a lot of the credibility that it once enjoyed and that's not a trivial detail for an insurance company.

There are a lot of options in front of Genworth that could at least theoretically improve the value. Restructuring the long-term care business could improve visibility and investor confidence, and there are some interesting options for the mortgage insurance businesses. All of that said, I'm worried that management believes it can just keep patching the holes as they appear and lacks the willingness to take a bigger swipe at restructuring the business for future profitability. Given that opinion, while I see meaningful potential value in a turned-around Genworth, I'm not inclined to take on the risk.

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Separating The 'Coulds' And 'Woulds' At Genworth

Seeking Alpha: Can Investors Leverage Leftover Skepticism On Genworth To Their Advantage?

A few years ago investors were spoiled for choice when it came to insurance companies. Many of these companies have since repaired their balance sheets and returned to posting decent if not good returns. The markets have responded, leaving investors considering names like MetLife (MET) and Arch Capital (ACGL) in a position where they are looking at longer timelines for meaningful market-beating returns.

Genworth (GNW) is a different story. The stock has given investors a wild ride, but the last couple of years have been pretty solid. Even with new management and clear progress in improving its businesses, there's still some lingering skepticism regarding Genworth and the company's ability to return to high single-digit ROEs. Genworth has chosen to stay in businesses that many other insurance companies have left behind, but if Genworth's long-term ROE hits 8% or 9%, there's still upside for a stock at its highest point in four years.

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Can Investors Leverage Leftover Skepticism On Genworth To Their Advantage?

Seeking Alpha: Arch Capital Seldom Looks Cheap, But Mortgage Insurance Should Spur Growth

I've never made any secrets of the respect I have for Arch Capital (ACGL) management. Many company executives talk about the importance of creating shareholder value and making decisions to maximize value, but it is my opinion that Arch Capital lives up to that to a much higher degree than most other companies. When the management sees attractive return-generating opportunities, they deploy capital. When management does not see those opportunities, they conserve and/or return capital.

Investors had a rare opportunity to acquire Arch Capital shares at attractive valuations, but only when it seemed like the U.S. financial system was melting down. Since then, the shares have regained their luster and their high-end multiples. I do believe that Arch Capital's foray into mortgage insurance will prove a good move, and quality companies have a knack for exceeding long-term expectations (and price targets), but the short-term opportunity is not to compelling.

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Arch Capital Seldom Looks Cheap, But Mortgage Insurance Should Spur Growth

Investopedia: Genworth Looking At A Lot Of Heavy Lifting

A year ago, I thought that Genworth (NYSE:GNW) was a high-risk insurance story that was trading at a substantial discount to its long-term value. With the stock up almost 130% since then, I feel pretty good about that call. Looking at the company again today, though, I'm not nearly as optimistic about the stock. While the stock is still undervalued on a long-range ROE model, the growing challenges in mortgage insurance and long-term care insurance bode poorly for nearer-term value creation.

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http://www.investopedia.com/stock-analysis/070813/genworth-looking-lot-heavy-lifting-gnw-met-acgl-cno.aspx

Investopedia: When Will Genworth's Turnaround Come?

There's still ample economic wreckage from the housing bubble and crash, but many participants have clawed their way back and are starting to see signs of normalization. Major mortgage issuers like Wells Fargo (NYSE:WFC) are back to paying dividends and thinking about long-term growth strategies, while insurance companies like MetLife (NYSE:MET) are largely secure from a capital standpoint (even if U.S. regulators don't completely agree).
Genworth (NYSE:GNW) is a different case. While the stock and company are clearly back from the brink of complete ruin (the stock traded for less than 90 cents just over three years ago), the company is not exactly strong or thriving again. The resignation of the company's CEO may facilitate a better turnaround strategy, but investors considering these shares are going to have to have patience to see the investment work out.

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http://stocks.investopedia.com/stock-analysis/2012/When-Will-Genworths-Turnaround-Come-GNW-MET-UNM-PRU0615.aspx

Investopedia: MetLife Seems Seriously Underestimated

Even accepting that the credit crunch and recession changed a lot of views on just how strong even the best financial institutions actually are, it seems like MetLife (NYSE:MET) still carries too much doubt and skepticism with it. Granted, regulatory burden and low interest rates are certainly near-term challenges, but patient investors could reap outsized gains if and when MetLife can return to more normal performance.

Pretty Solid Fourth Quarter Results  
MetLife delivered a good end to the fiscal year. At the bottom-most of bottom lines, operating earnings came in at $1.31; not only up 15% from last year, but comfortably ahead of an average expectation of 1.24.

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http://stocks.investopedia.com/stock-analysis/2012/MetLife-Seems-Seriously-Underestimated--MET-PRU-GNW-SLF0216.aspx