MET MetLife Inc

We are upgrading the recommendation on StanCorp Financial Group Inc. (SFG) to Neutral from Underperform on the back of strong third quarter results. Overall benefit ratio declined compared with the last two quarters. Earnings per share of 96 cents also surpassed the Zacks Consensus Estimate by 30 cents.

StanCorp reported a benefit ratio of 80.7% in the third quarter, lower than  the past two quarters due to favorable group life claims experience. Benefit ratio in second quarter was 84.8%, while the first quarter saw 84.2%.  Also, Group insurance premiums, in the third quarter, showed a 4.5% year-over-year growth, reflecting strong group insurance sales and customer retention.

Furthermore, StanCorp enjoys a strong capital position. At quarter-end, available capital was approximately $200 million, up from $155 million at last quarter end. The increase in available capital during the quarter was the result of higher income from our insurance subsidiaries together with real estate sales partially offset by share repurchases.

The company also remains focused on returning value to its shareholders. In the third quarter, StanCorp bought back approximately 0.4 million shares for $9.7 million. Year-to-date buybacks totaled 2.2 million shares for $90 million. As of September 30, StanCorp had approximately 3.1 million shares remaining under its repurchase authorization.

On the flip side, StanCorp’s Asset Management segment, after posting solid earnings over the past couple of quarters, witnessed a decline in the third quarter. The decrease was mainly driven by lower administrative fee revenues due to the decline in assets under administration, coupled with  the impact of lower interest rates on the hedges used for the company’s equity-indexed annuity product.

Also, Operating expense at StanCorp has increased year over year in the last couple of quarters. Third quarter operating expense increased 11% year over year. The company expects to incur another $4 million in the fourth quarter mainly associated with information technology service efficiencies.

Also, StanCorp plans to implement new accounting guidance related to deferred acquisition costs (DAC) in the first quarter of 2012. Thus, the company expects pre-tax expenses to increase by $3 million to $4 million annually. The company also estimates a reduction in book value per share of approximately 1% to 2%.

The Zacks Consensus Estimate for fourth quarter 2011 is 78 cents per share. For full years 2011 and 2012, the Zacks Consensus Estimates are $3.04 and $3.76, respectively.

The quantitative Zacks #3 Rank (short-term Hold rating) for the company indicates no clear directional pressure on the stock over the near term.

Headquartered in Portland, Oregon, StanCorp Financial Group is one of the largest providers of employee benefits products and services in the U.S. The company operates across the country, with a dominant position in western U.S. It competes with Unum Group (UNM), MetLife, Inc. (MET) and Principal Financial Group Inc. (PFG).

 
METLIFE INC (MET): Free Stock Analysis Report
 
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