Market Overview

MetLife and Other UBS Picks for Rising Interest Rates

After taking a look at the prospects for higher interest rates and how investor sentiment might be affected by them, analysts at UBS (NYSE: UBS) have recommended three financial stocks that stand to benefit most from rising rates over the short term.

They are insurers Lincoln National (NYSE: LNC), MetLife (NYSE: MET) and Unum Group (NYSE: UNM). Below we take a glance at how these four stocks have fared and what analysts expect from them.

Note that over the longer term, UBS also liked Bank of New York Mellon (NYSE: BK), Charles Schwab (NYSE: SCHW), Morgan Stanley (NYSE: MS) and TD Ameritrade (NYSE: AMTD).

Lincoln National

This operator of multiple insurance and investment management businesses sports a market capitalization of a little more than $9 billion. The dividend yield is near 1.3 percent. The long-term earnings per share (EPS) growth forecast is about nine percent, and the price-to-earnings (P/E) ratio is lower than the industry average. But the operating margin is greater than the industry average.

The short interest in Lincoln National was more than six percent of the float as of the May 15 settlement date. That was the second highest number of shares sold short in the past year, after marginally declining from the previous period. The days to cover slipped to less than five for the first time since March.

The consensus recommendation of the analysts that follow the stock and were polled by Thomson/First Call is to hold shares, and it has been for at least three months. The mean price target, or where the analysts expect the share price to go, is less than five percent higher than the current share price. However, the UBS target is almost seven percent higher than the share price.

The share price is up about 27 percent year-to-date, though it has pulled back about two percent from a multiyear high reached last week. Over the past six months, the stock has outperformed larger competitor Prudential Financial (NYSE: PRU), as well as the broader markets.

MetLife

This global life insurance and employee benefit program provider has a market cap of more than $47 billion and a dividend yield of about 2.5 percent. The long-term EPS growth forecast is more than 11 percent, and the P/E ratio is higher than the industry average. But the return on equity is less than four percent.

The short interest in this New York-based company was about three percent of the total float at mid-May. That was the lowest number of shares sold short since February, after falling about seven percent from the previous period. The days to cover slipped to less than three for the first time since March.

Of the 23 analysts surveyed, 18 recommend buying shares, with six of them rating the stock at Strong Buy. And the analysts think shares have some headroom, as their mean price target is more than nine percent higher than the current share price. But note that UBS sees only about four percent potential upside.

The share price is about 25 percent higher than at the beginning of the year. It hit a 52-week high last week. Over the past six months, the stock has outperformed American International Group (NYSE: AIG) and Prudential Financial. MetLife also outperformed the broader markets in that time.

Unum Group

This provider of group and individual disability insurance products is headquartered in Chattanooga, Tennessee, and it has a market cap of more than $7 billion. Its dividend yield is near 1.8 percent. The long-term EPS growth forecast is more than eight percent, and the P/E ratio is about 8.5.

The number of shares sold short as of the most recent settlement date represented less than two percent of the total float, after declining for the fifth consecutive period. That was the lowest level of short interest since February. The days to cover was a little more than two.

Only five of the 19 analysts polled recommend buying shares. The consensus recommendation has been to hold Unum shares for the past three months. The mean price target indicates that the analysts see less than seven percent upside potential. But the UBS price target is more than 11 percent higher than the current share price.

Though the share price is up more than 31 percent year-to-date, shares have traded mostly between $26 and $29 since early March. Still, the stock has outperformed peers Aflac (NYSE: AFL) and Cigna (NYSE: CI), as well as the broader markets, over the past six months.

Posted-In: Aflac AIG American International Group Bank of New York Mellon Charles SchwabLong Ideas Short Ideas Trading Ideas Best of Benzinga

 

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