• If you are wondering whether MetLife’s current share price reflects its true worth, this article explains how the market might be pricing the stock today.
• MetLife last closed at US$73.24, with returns of a 2.7% decline over 7 days, a 7.2% decline over 30 days, an 8.8% decline year to date, and a 12.0% decline over 1 year, compared with gains of 15.3% over 3 years and 41.2% over 5 years.
• These mixed returns sit against a backdrop of ongoing news coverage around the company’s position as a major US insurer, regulatory developments affecting the sector, and investor interest in more established income oriented names. Together, these factors help explain why the stock’s shorter term moves may differ from its longer term record.
• On our simple valuation checklist, MetLife scores 4 out of 6 for being undervalued, giving it a value score of 4. We will walk through the key valuation methods shortly, then wrap up with a more complete way to think about what that score really means for you.

Approach 1: MetLife Excess Returns Analysis

The Excess Returns model looks at how much profit a company is expected to generate above the return that shareholders require, then attributes that surplus back to each share. For MetLife, the key inputs are its profitability on equity and how that compounds over time.

MetLife’s Book Value is $43.33 per share and its Stable EPS is $7.90 per share, based on weighted future Return on Equity estimates from 7 analysts. The model assumes a Cost of Equity of $3.45 per share and an Excess Return of $4.45 per share, with an Average Return on Equity of 15.97%. Over time, this supports a Stable Book Value estimate of $49.47 per share, using weighted future Book Value estimates from 5 analysts.

Putting these assumptions together, the Excess Returns model arrives at an estimated intrinsic value of about $174.09 per share. Compared with the recent share price of $73.24, this implies an intrinsic discount of 57.9%, which classifies MetLife as undervalued within this framework.

Result: UNDERVALUED

Our Excess Returns analysis suggests MetLife is undervalued by 57.9%. Track this in your watchlist or portfolio, or discover 45 more high quality undervalued stocks.

Approach 2: MetLife Price vs Earnings

For a profitable company like MetLife, the P/E ratio is a useful shorthand for how much investors are paying for each dollar of earnings. It helps you compare what the market is willing to pay for this earnings stream relative to other insurers and to the broader market.

What counts as a “normal” or “fair” P/E usually reflects two things: how quickly earnings are expected to grow, and how risky those earnings appear. Higher expected growth or lower perceived risk can justify a higher P/E, while slower growth or higher risk tends to be associated with a lower P/E.

MetLife currently trades on a P/E of 15.05x. That sits close to the peer average of 14.85x and above the Insurance industry average of 12.02x. Simply Wall St’s Fair Ratio for MetLife is 16.81x, which is a proprietary estimate of the P/E the company might warrant after considering factors such as its earnings growth profile, industry, profit margins, market cap and risk characteristics.

Because the Fair Ratio incorporates these company specific drivers directly, it can be more informative than looking only at peers or sector averages. With the current P/E of 15.05x below the Fair Ratio of 16.81x, MetLife screens as undervalued on this metric.

Result: UNDERVALUED

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Upgrade Your Decision Making: Choose your MetLife Narrative

Earlier we mentioned that there is an even better way to understand valuation. Narratives on Simply Wall St let you attach your story about MetLife to the numbers by linking your view of its future revenue, earnings and margins to a forecast and fair value. You can then compare that fair value to the current price to help you decide when to buy or sell. Each Narrative on the Community page updates automatically as fresh news or earnings arrive. One investor might lean toward the higher fair value around US$108 if they focus on international growth, digital initiatives and retirement income agreements. Another might anchor closer to US$72 if they are more cautious about interest rates, credit risk and execution on technology and legacy blocks.

Do you think there's more to the story for MetLife? Head over to our Community to see what others are saying!

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.