Metlife Inc (MET) and Lincoln National Corporation (LNC) are two companies trading below book value at 8 times forward earnings that are looking to use capital to buy back stock, thus forecasting a positive outcome on the interest rate environment, says Randy Binner, Managing Director at FBR Capital Markets & Co.
“MET and Lincoln, which I’m going to mention in a second, all have the ability to buy back stock. We think they all have sufficient excess capital to buy back stock…when they enter into these buybacks, they’re accretive because they are below book value, and so when large, well-managed companies buy back stock below book value, that’s a good thing,” Binner said.
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MET and LNC are both currently trading at around 85% book value excluding AOCI at 8 times forward earnings, and Binner believes both companies can buy back stock attractively from a capital perspective.
“People worry about their exposure to lower interest rates, but from a capital perspective, we believe they can and will buy back stock attractively under book value. They will take that capital and buy back stock with it when the markets are really worrying about their business exposure to interest rates, so those companies are forecasting a better outcome than the market is, quite frankly, when it comes to interest rates,” Binner said.
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