Life Insurers are Limping in to Their Earnings Reports, and the Fundamentals Aren’t Good

Life insurance companies mainly sell policies that pay a death benefit as a lump sum upon the death of the insured. Policies may be sold as term life which guarantees payment of a stated death benefit, but expires at the end of a specified term. They can also be sold as permanent or whole life policies. These policies are more expensive, but lasts a lifetime and carry a cash accumulation component. Life insurance firms may also sell long-term disability policies that help to replace the insured’s income if they become sick or disabled.

Over the last week the life insurance group has been one of the worst performing groups in terms of stock returns. We see on Tickeron’s Group Trends Screener that it’s within the worst seven performers with a loss of 3.19%. This probably isn’t what investors want to see with a number of members of the group getting ready to report earnings next week.

Prudential Financial (PRU) will report earnings on August 4. Manulife Financial (MFC) and Metlife (MET) will both report on August 5. Looking at a comparison of these three companies and their fundamental indicators, there isn’t much to be excited about.

All three companies get positive ratings for being undervalued, but the only other positive rating for any of them is a the outlook rating for Prudential. All of the other ratings are either neutral or negative. There are seven different categories and that gives us a total of 21 indicators. Out of 21 indicators, only four are positive. That’s not a very good percentage.

Personally I find it very concerning that all three stocks get the worst possible scores on the Profit Vs. Risk rating and the SMR rating. That is a major red flag for me when it comes to the long-term prospects for the stocks. Tickeron has a negative outlook on this group and predicts a further decline by more than 4.00% within the next month with a likelihood of 65%.

The technical analysis looks considerably better. You should keep in mind though that technical analysis tends to be more useful over the short-term. Tickeron’s technical analysis screener shows Metlife with five positive ratings and only one negative rating.

Prudential has four positive ratings and only two negative ratings. Manulife has only one positive rating and one negative rating.

The earnings estimates and the sentiment indicators for the three companies are very different in some areas and very similar in other areas. Metlife and Prudential have seen their consensus estimate get cut rather drastically over the last 90 days. For Metlife the EPS estimate was at $1.32 three months ago and is now at $0.90. Prudential’s EPS estimate was $2.65 and it’s now $1.71. Those are cuts of 31.8% and 35.5% respectively. We see that both of the companies are expected to earn considerably less than they did in the same period of 2019.

Manulife’s numbers are very different. We see that EPS estimate has been bumped up slightly, from $0.47 to $0.50, and the company is expected to earn more than it did last year.

As for the sentiment indicators, analysts have similar ratings on Metlife and Manulife with both buy percentages at 64%. Analysts are considerably more bearish on Prudential with a buy percentage of only 20%. Short sellers share a similar opinion with the short interest ratios for Metlife and Manulife in the same range while Prudential’s is higher.

The Tickeron Scorecard for these three stocks shows Metlife and Prudential each have “buy” ratings while Manulife has a “sell” rating. Those ratings are based primarily on the short-term outlook and the technical indicators. From a longer term perspective, I feel Manulife has the better outlook.

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