MetLife, Inc. (NYSE:MET) shares are up more than 9.95% this year and recently increased 0.80% or $0.42 to settle at $52.80. Genworth Financial, Inc. (NYSE:GNW), on the other hand, is up 2.10% year to date as of 10/18/2017. It currently trades at $3.89 and has returned 2.64% during the past week.
MetLife, Inc. (NYSE:MET) and Genworth Financial, Inc. (NYSE:GNW) are the two most active stocks in the Life Insurance industry based on today’s trading volumes. To determine if one is a better investment than the other, we will compare the two companies’ growth, profitability, risk, return, and valuation characteristics, as well as their analyst ratings and sentiment signals.
The ability to grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect MET to grow earnings at a 9.00% annual rate over the next 5 years. Comparatively, GNW is expected to grow at a 5.00% annual rate. All else equal, MET’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
A high growth rate isn’t necessarily valuable to investors. In fact, companies that overinvest in low return projects just to achieve a high growth rate can actually destroy shareholder value. Profitability and returns are a measure of the quality of a company’s business and its growth opportunities. We’ll use EBITDA margin and Return on Investment (ROI) to measure this. EBITDA margin of 15.56% for Genworth Financial, Inc. (GNW). MET’s ROI is 2.30% while GNW has a ROI of 1.70%. The interpretation is that MET’s business generates a higher return on investment than GNW’s.
Cash is king when it comes to investing. MET’s free cash flow (“FCF”) per share for the trailing twelve months was +2.70. Comparatively, GNW’s free cash flow per share was +1.30. On a percent-of-sales basis, MET’s free cash flow was 4.51% while GNW converted 7.75% of its revenues into cash flow. This means that, for a given level of sales, GNW is able to generate more free cash flow for investors.
MET’s debt-to-equity ratio is 0.33 versus a D/E of 0.35 for GNW. GNW is therefore the more solvent of the two companies, and has lower financial risk.
MET trades at a forward P/E of 11.02, a P/B of 0.82, and a P/S of 0.88, compared to a forward P/E of 4.09, a P/B of 0.15, and a P/S of 0.22 for GNW. MET is the expensive of the two stocks on an earnings, book value and sales basis. Given that earnings are what matter most to investors, analysts tend to place a greater weight on the P/E.
Analyst Price Targets and Opinions
A cheap stock is not necessarily a value stock. Most of the time, a stock is cheap for good reason. A stock only has value if the current price is substantially below the price at which it should trade in the future. MET is currently priced at a -3.53% to its one-year price target of 54.73. Comparatively, GNW is 0.26% relative to its price target of 3.88. This suggests that MET is the better investment over the next year.
The average investment recommendation on a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell) is 2.30 for MET and 3.00 for GNW, which implies that analysts are more bullish on the outlook for GNW.
Risk and Volatility
To gauge the market risk of a particular stock, investors use beta. Stocks with a beta above 1 are more volatile than the market as a whole. Conversely, a beta below 1 implies below average systematic risk. MET has a beta of 1.50 and GNW’s beta is 2.85. MET’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
Short interest is another tool that analysts use to gauge investor sentiment. It represents the percentage of a stock’s tradable shares that are being shorted. MET has a short ratio of 2.74 compared to a short interest of 3.00 for GNW. This implies that the market is currently less bearish on the outlook for MET.
MetLife, Inc. (NYSE:MET) beats Genworth Financial, Inc. (NYSE:GNW) on a total of 9 of the 14 factors compared between the two stocks. MET is growing fastly, generates a higher return on investment, has higher cash flow per share, higher liquidity and has lower financial risk. MET is more undervalued relative to its price target. Finally, MET has better sentiment signals based on short interest.