MetLife, Inc. (NYSE:MET) shares are down more than -10.60% this year and recently increased 1.30% or $0.58 to settle at $45.20. Genworth Financial, Inc. (NYSE:GNW), on the other hand, is down -11.90% year to date as of 02/13/2018. It currently trades at $2.74 and has returned -0.36% 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. We will compare the two companies based on the strength of various metrics, including growth, profitability, risk, return, and valuation to determine if one is a better investment than the other.
One of the key things investors look for in a company is the ability to grow earnings at a high compound rate over time. Analysts expect MET to grow earnings at a 11.39% 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
Growth in and of itself is not necessarily valuable, and it can even be harmful to shareholders if companies overinvest in unprofitable projects in pursuit of that growth. We will use EBITDA margin and Return on Investment (ROI), which adjust for differences in capital structure, as measure of profitability and return. EBITDA margin of 19.94% 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.
Earnings don’t always accurately reflect the amount of cash that a company brings in. MET’s free cash flow (“FCF”) per share for the trailing twelve months was +4.01. Comparatively, GNW’s free cash flow per share was -. On a percent-of-sales basis, MET’s free cash flow was 6.65% while GNW converted 0% of its revenues into cash flow. This means that, for a given level of sales, MET is able to generate more free cash flow for investors.
MET’s debt-to-equity ratio is 0.35 versus a D/E of 0.35 for GNW. MET is therefore the more solvent of the two companies, and has lower financial risk.
MET trades at a forward P/E of 9.25, a P/B of 0.85, and a P/S of 0.81, compared to a forward P/E of 2.80, a P/B of 0.10, and a P/S of 0.17 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 isn’t a good investment if the stock is priced accurately. To get a sense of “value” we must compare the current price to some measure of intrinsic value such as a price target. MET is currently priced at a -19.18% to its one-year price target of 55.93. Comparatively, GNW is -26.93% relative to its price target of 3.75. This suggests that GNW 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 2.40 for MET and 3.00 for GNW, which implies that analysts are more bullish on the outlook for GNW.
Risk and Volatility
Analyst use beta to measure a stock’s volatility relative to the overall market. Stocks with a beta above 1 tend to have bigger swings in price than the market as a whole, the opposite being the case for stocks with a beta below 1. MET has a beta of 1.23 and GNW’s beta is 2.29. MET’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
Short interest, or the percentage of a stock’s tradable shares currently being shorted, is another metric investors use to get a pulse on sentiment.MET has a short ratio of 1.93 compared to a short interest of 3.21 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 8 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, has a higher cash conversion rate and higher liquidity. Finally, MET has better sentiment signals based on short interest.