Best stock to invest in 2021: MetLife Inc. Vs Pioneer Natural Resources Co.

Pioneer Natural Resources Co. (NYSE: PXD)

We can’t miss listing Pioneer Natural Resources talking about the best stocks to invest in 2021. This is particularly true because its recent acquisition provides Pioneer with additional assets and further diversifies its operations into the prolific Delaware basin.

Pioneer’s offer provides Parsley shareholders with a 7.9% acquisition premium based on the companies’ closing share prices on October 19, 2020. The total value of the transaction is approximately $7.6 billion.

The acquisition provides Pioneer with additional assets and further diversifies its operations. Parsley’s 137,000 acres complement PXD’s Midland position while adding 111,000 contiguous acres in the Delaware Basin. In discussing the transaction, Pioneer CEO Scott Sheffield said that the importance of ‘size and scale are increasing,’ and that PXD would be one of the few independent E&Ps with enough scale to be investable after the current wave of consolidation.

The adjustments reflect the restoration of previously curtailed production. The company projects 2020 drilling, completions, and facilities capital spending of $1.3-$1.5 billion.

EPS estimate to $5.02 from $3.55 based on our higher crude oil price assumptions for next year and continued strong cost controls, which should lower per barrel well costs.

Scott Sheffield is the president, CEO, and founder of Pioneer Natural Resources. Richard Dealy is the CFO, a position he has held since 2004.

PXD shares face risks. The share prices of oil companies often move in tandem with oil prices. This is particularly true for companies such as Pioneer Natural Resources, whose earnings depend heavily on exploration efforts. Given the relatively high proportion of oil in its production profile, Pioneer is more leveraged to oil prices than other integrated firms. The company also faces the risk that its exploration efforts will fail to yield commercial quantities of hydrocarbons or meet investor expectations.

Based in Dallas, Pioneer Natural Resources is one of the top E&P companies in the Permian Basin in West Texas. The company explores for and produces oil, natural gas, and NGLs. After a series of asset divestitures in 2018 and early 2019, the company is now focused exclusively on the Permian Basin.

They trade at 47.2-times our depressed 2020 EPS estimate and 18.1-times our 2021 forecast. However, analysts believe that PXD is undervalued relative to peers based on its debt leverage, cost structure, dividend yield, and asset efficiency. We also see value based on discounted free cash flow.

MetLife Inc. (NYSE: MET)

MetLife Inc. (NYSE: MET) In the very near term, we expect lower sales and higher claims due to the coronavirus; however, recent vaccine development news has given the stock positive momentum. We continue to expect MetLife to benefit from the separation of the underperforming Brighthouse Financial retail unit, and have a positive view of the company’s business diversification, cost-reduction efforts, and $2 billion share repurchase program.

The stock trades at 0.6-times book value, below the peer median of 0.9, and at 7.2-times our 2021 EPS estimate, near the peer median of 7.5. We believe that MET, as the industry leader, merits higher multiples. MetLife has also grown its dividend at 2.8% annual.

The beta on MET is 1.28. On November 4, MetLife posted 3Q20 results. Adjusted earnings rose 50% from 3Q19 to $1.8 billion, reflecting higher premium income and gains in private equity investments. Adjusted EPS rose to $1.95 from $1.17 a year earlier.

Premiums and fees fell 6% from the prior year to $11.9 billion. Net investment income rose 2% to $4.7 billion.

Analysts look for MetLife earnings to benefit from a potential coronavirus vaccine, higher long-term interest rates, lowers costs, and management’s focus on protection-oriented products. We also have a positive view of the company’s international expansion plans; management expects emerging markets to account for nearly 20% of earnings this year.

Over the long term, MetLife expects to generate single-digit earnings growth, with mid-single-digit growth in the Americas, 10%-12% growth in EMEA, and single-digit growth in Asia.

Analysts expect the company to benefit from higher sales and cost-cutting over time.  Cash and liquid assets were $7.8 billion at September 30, well above the $3-$4 billion target range.

Michel Khalaf has served as the company’s president and CEO since May 2019 and is also a member of the board.

Risks for MetLife include slow economic growth and volatile equity markets. Regulatory risks and narrowing investment spreads also present potential headwinds.

Analysts believe that MetLife, as the industry leader, merits a higher valuation. Our target price of $53 implies a projected 2021 price/book multiple of 0.7 and a P/E of 8.3, closer to peer average multiples. We believe that continued positive coronavirus vaccine news could be a catalyst for further share price appreciation.

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