UNIVERSITY OF CONNECTICUT – STUDENT MANAGED FUND
STOCK ANALYSIS REPORT
Prepared by Zhiqun (Lily) Ding
March 4, 2002
METLIFE INC (NYSE - MET)
Industry:
insurance (life)
Sector:
Financial services
Valueline:
Timeliness 2, Safety 2, Technical 2
Beta:
1.1
Large Cap:
$ 20.1 billion
StockScouter (CNBC): 8 (outperform the market)
RECOMMENDATION
Buy 150 shares @ $ 26.05 = $ 3,907.5
Stop loss order:
$22.14 (-15%)
Upside Review:
$29. 96 (+15%)
1. BUSINESS SUMMARY
MetLife, created by the demutualization of the Metropolitan Life Insurance Company on
4/7/00, is a leading provider of insurance and other financial services to a broad spectrum of
individual and institutional customers. The origins of Metropolitan Life Insurance Company
(MetLife) go back to 1863. The MetLife companies serve approximately ten million
individual households in the U.S. and companies and institutions with approximately 33
million employees and members, including 88 of the FORTUNE 100 largest companies.
MetLife is organized into six major business segments: Individual, Institutional, Reinsurance,
Auto & Home, Asset Management and International.
In November 2001, the Company acquired Seguros de Vida Santander and Soince
Reinsurance Company, wholly owned subsidiaries of Santander Central Hispano in Chile. In
June 2002, the Company acquired the former government-owned Aseguradora Hidalgo S.A.,
a life insurer in Mexico.
The Company's unparalleled franchises and brand names uniquely position it to be the
preeminent provider of protection and savings and investment products in the U.S. In addition,
MetLife's international operations are focused on emerging markets where the demand for
insurance and savings and investment products is expected to grow rapidly in the future.
MetLife's well-recognized brand names, leading market positions, competitive and
innovative product offerings and financial strength and expertise should help drive future
growth and enhance shareholder value, building on a long history of tradition and integrity.
Page 1 of 8
2. Financials /Benchmarking:
Net income for 2002 was $1.61 billion, or $2.20 per diluted share. For 2001, net income was
$473 million, or $0.62 per diluted share. For the FY ended 12/31/02, total revenues increased
6% to $34.06B. Net income from continuing operations before accounting change increased
92% to $1.74B. Revenues benefited from increased Auto & Home & Reinsurance segment
premiums. Net income also benefited from lower interest credited to policyholder account
balances.
Auto & Home's combined ratio in 2002 was 99.4%, compared with 106% for the prior year.
The improvement in the combined ratio was driven by increased average earned premium
resulting from rate increases, fewer catastrophe and other weather-related losses, and better
expense efficiencies.
The value of international operations becomes more apparent in 2002. Operating earnings
from International in the fourth quarter of 2002 were $38 million compared with an after-tax
operating loss of $8 million in the year-ago period. The 2000-quarter included approximately
$26 million of after-tax earnings from acquisitions in Mexico and Chile.
Future potential:
Valueline’s analyst raised 2003 EPS estimates to $2.8, which happens to be the same as
Zacks’ projection.
EPS in the following 12 months
and earnings growth rates in the
next 5 yrs are estimated by Zacks.
EPS has strong growth trend;
Earnings growth rates in the next
5 yrs. projected are higher than
those of industry and S&P 500.
Historical financial (Trailing 12 months)
Growth rate
Growth Rates %
Company
Industry
S&P 500
4.70
0.20
0.10
Income (Qtr vs year ago qtr)
239.30
-0.60
13.70
EPS (Qtr vs year ago qtr)
254.80
0.00
18.10
Sales (Qtr vs year ago qtr)
Page 2 of 8
Sales, income and EPS all beat industry and S&P 500; especially income and EPS have
impressing growth.
Financial health
Financial Condition
Company
Industry
S&P 500
Debt/Equity Ratio
0.20
0.31
1.17
Leverage Ratio
15.7
12.1
5.9
24.39
13.17
10.57
Company
Industry
S&P 500
Return On Equity
9.4
7.1
8.1
Return On Assets
0.6
0.6
1.4
Return On Capital
7.8
5.4
3.7
Book Value/Share
High leverage ratio of 15.7 reflects healthy financial conditions.
Management performance
Investment Returns %
Beautiful ROE, ROA, and ROC prove effective management.
P/E ratio
Price Ratios
Current P/E Ratio
Company
Industry
S&P 500
11.9
31.3
31.7
P/E ratio is pretty lower than industry average, and S&P 500, which implies Met’s price is
undervalued relative to earnings.
Cash Flow
2001
2000
Net Cash from Operating Activities
4799
1326
Net Cash from Investing Activities
-3663
83
Net Cash from Financing Activities
2903
-764
Net Change in Cash & Cash Equivalents
4039
645
Free Cash Flow
4378
758
Met’s free cash flow shows the company's ability to repay debts, to reinvest and to pay
dividends.
3. CHARTS
Page 3 of 8
5--yr comparison
MET has outperformed his competitor of Marsh & McLennan Companies, Inc. (MMC has the
biggest Market Cap) and S&P 500 and Dow Jones average since its 2000 demutualization.
Refer to Appendix II about competition.
4. RECENT NEWS
Eileen McDonnell Appointed Senior Vice President, MetLife Individual
Insurance Business Development
February 27, 2003 11:45:00 AM ET
NEW YORK--(BUSINESS WIRE)--Feb. 27, 2003--MetLife announced today that Eileen McDonnell has
been appointed senior vice president, Individual Insurance Business Development.
With 17 years of experience in the financial services industry, Eileen brings a successful track record
of running individual markets as well as group pensions," said, Robert Henrikson, president, U.S.
Insurance and Financial Services Businesses. "Her breadth and depth of experience make her a key
addition to our leadership team."
"MetLife and its retail distribution channels are committed to putting the customer at the heart of
everything they do. That commitment, coupled with the company's desire for profitable growth and its
strong brand and reputation, is what attracted me to MetLife," said Ms. McDonnell. "I am excited to
lead the company's retail recruiting efforts while also concentrating on strategic planning and expense
management."
MetLife's Chairman And CEO To Speak at 28th Annual AIFA Conference
February 27, 2003 4:02:00 PM ET
Page 4 of 8
NEW YORK--(BUSINESS WIRE)--Feb. 27, 2003--MetLife, Inc.'s MET chairman and chief executive
officer, Robert H. Benmosche, will be one of the life insurance panelists at the 28th Annual AIFA
Conference on Monday, March 3, 2003, at 9:00 a.m. (CT).
Mr. Benmosche will also be the conference's dinner speaker later that evening at 6:00 p.m. (CT).
A.M. Best Assigns Indicative Debt Rating to MetLife, Inc.'s Debentures
2/25/2003 - 2:03:00 PM
OLDWICK, N.J., Feb 25, 2003 (BUSINESS WIRE) --A.M. Best Co. has assigned an "a+" indicative
senior unsecured debt rating to MetLife, Inc.'s (MetLife or the Company) (NYSE: MET) (New York)
$1.00625 billion aggregate principal amount of its 3.911% debentures, due May 15, 2005.
MetLife profit up, helped by investments
February 10, 2003 5:55:00 PM ET
In NEW YORK story "MetLife profit up, helped by investments," in headline please read ... "MetLife
posts quarterly profit on investments".
NEW YORK, Feb 10 (Reuters) - MetLife Inc. (MET), the No. 1 U.S. life insurer, on Monday said posted
a quarterly profit rose, helped by investment gains.
5. MODELS
Risk free rate (krf):
km:
Beta:

3.0% (10-year T-Note)
8.0%
1.1
DDM Model
Capital Asset Pricing Model
ks = krf + (km - krf)
ks =3% + 1.1 * 5% = 8.5 %
Discounted Cash Flow (DCF)
PV- Dividends 01: 0.20
FV- Dividends 02: 0.21
gd = 5%
PV- EPS1999: 1.21
FV- EPS2001: 2.56
Pmt =0, N = 3
gs = 28.38%
Changes in ROE AND expected growth
ROE01 = 6.5
ROE02 = 10.5
Page 5 of 8
Average dividend payout ratio = (0+ 0+12% + 14% +8%) / 5 = 7%
Average Retention b: 1- 7%= 93%
gr =b *ROE t+1 + ( ROE t+1 – ROE t)/ ROE t = 93% * 10.5 + (10.5 – 6.5)/6.5 = 71.3%
Average g: (5+28.38+71.3)/3= 34.89%
g>k It means this stock has experienced high growth rates, so new assumptions will have to
be made (use multistage growth model).
 Multistage Growth Model
Assumptions: 5 years of supernormal growth, where g=35% after that, g=6%
Intrinsic value V0 = $ 28.92
Vo > P ($26.05)
Buy decision.
(The company pays small dividends to reinvest.)

No Growth Model
Price = E0/k = 1.92/0.085= $22.59

P/E Model (5-yr horizon)
Estimated EPS: $3.5 (VL)
Average P/E Ratio = (14.4+21.9+11)/3 = 15.77
Projected high price = $3.5 *15.77= $ 55.20
Lowest Price in last 3 years = $14.3
Present Price = $26.05
Upside potential = 29.15
Downside potential = 11.75
Upside/downside potential = 2.5
Buy decision
6. Analyst Ratings
Recommendations
Current
1 Month Ago
2 Months Ago
3 Months Ago
Strong Buy
10
10
9
8
Moderate Buy
6
6
7
7
Hold
4
4
4
4
Moderate Sell
1
1
1
1
Strong Sell
0
0
0
0
Mean Rec.
1.79
1.79
1.83
1.88
Page 6 of 8
7. RISK FACTORS






Changes in general economic conditions, including the performance of financial
markets and interest rates; unanticipated changes in industry trends
Heightened competition, including with respect to pricing, entry of new competitors
and the development of new products by new and existing competitors;
MetLife, Inc.'s primary reliance, as a holding company, on dividends from its
subsidiaries to meet debt payment obligations and the applicable regulatory
restrictions on the ability of the subsidiaries to pay such dividends;
Regulatory, accounting or tax changes that may affect the cost of, or demand for, the
Company's products or services
Discrepancies between actual claims experience and assumptions used in setting
prices for the Company's products and establishing the liabilities for the Company's
obligations for future policy benefits and claims;
The effects of business disruption or economic contraction due to terrorism or other
hostilities
Appendix I
Key Ratios & Statistics
Price & Volume
Recent Price $
52 Week High $
52 Week Low $
Avg Daily Vol (Mil)
Beta
Share Related Items
Mkt. Cap. (Mil) $
Shares Out (Mil)
Float (Mil)
Dividend Information
Yield %
Annual Dividend
Payout Ratio (TTM) %
Financial Strength
26.17
34.85
20.60
2.48
0.47
18,326.33
700.28
287.40
0.80
0.21
0.00
Quick Ratio (MRQ)
Current Ratio (MRQ)
LT Debt/Equity (MRQ)
Total Debt/Equity (MRQ)
NM
0.20
0.25
Valuation Ratios
Price/Earnings (TTM)
Price/Sales (TTM)
Price/Book (MRQ)
Price/Cash Flow (TTM)
Per Share Data
Earnings (TTM) $
Sales (TTM) $
Book Value (MRQ) $
Cash Flow (TTM) $
Cash (MRQ) $
Mgmt Effectiveness
Return on Equity (TTM)
Return on Assets (TTM)
Return on Investment (TTM)
Profitability
12.28*
0.57*
1.07
27.52
2.13*
45.86*
24.39
0.95
5.21
9.60*
0.59
7.90*
Gross Margin (TTM) %
Operating Margin (TTM) %
Profit Margin (TTM) %
3.18
4.64*
Mil = Millions MRQ = Most Recent Quarter TTM = Trailing Twelve Months
Asterisks (*) Indicates numbers are derived from Earnings Announcements
Pricing and volume data as of 02/28/2003
Source: www.multinvestor.com
Name
Appendix II
MetLife Insurance Company Marsh & McLennan Companies, Inc.
Page 7 of 8
Industry
Insurance Brokers
Insurance Brokers
8
8
Current
$26.05
$40.29
FY End
$33.28
$45.26
27.74%
12.35%
$36.70
$51.82
40.88%
28.63%
33.42 Bil
10.44 Bil
1.61 Bil
1.37 Bil
StockScouter rating
Whose share price is estimated to gain the most?
% Change
Next Fiscal Yr
% Change
Who sold and earned the most over past 12 months?
Total Sales
Total Income
Who grew sales and income the most over the past 12 months?
Sales Growth
Income Growth
4.70%
5.00%
239.30%
40.10%
Whose shares are priced cheapest relative to earnings?
Price/Earnings Ratio
11.80
16.40
Net Profit Margin
4.80%
13.10%
Debt/Equity Ratio
0.20
0.58
-2.2%
-15.6%
3.2%
-12.6%
-19.2%
-25.9%
3-Mo Price Change
-10.80%
-10.80%
6-Mo Price Change
-8.60%
-8.60%
12-Mo Price Change
-22.20%
-22.20%
Company relative to all stocks
3-Mo Relative Strength
55
27
6-Mo Relative Strength
66
35
12-Mo Relative Strength
50
43
Whose financial health is strongest?
Whose share price has performed best in the last year?
Company Price Performance
3-Mo Price Change
6-Mo Price Change
12-Mo Price Change
Industry Price Performance
Source: www.moneycentral.com
Page 8 of 8