After 100% rally, Prudential Financial Stock is still strong

After gaining more than 100% from the lows of March 23 of last year, at the current price of $ 81 per share, we believe Prudential financial stock (NYSE: PRU) has further upside potential. Insurance giant Prudential Financial saw its stock drop from $ 39 to $ 81 from the recent low against the S&P which moved around 70% – so the stock is leading the markets in the sense large. That said, there is a lag between its stock growth and revenue – Prudential Financial’s revenue fell 6% to a consolidated figure of $ 60.2 billion for the last 4 quarters compared to the last 4 quarters. consolidated figure of 64 billion dollars for the 4 previous quarters. However, the company reported higher earnings in its third quarter 2020 results, coupled with positive revenue growth. It was driven by the recovery in the US workforce solutions and international insurance segments, which is the main reason for positive investor sentiment towards the stock.

Prudential Financial stock has partially reached where it was before February’s drop due to the coronavirus outbreak turning into a pandemic. Despite gains from March 23 lows, we believe the company’s stock still has potential as its historic P / E multiples imply that it still has some way to go.

The company’s revenue grew by around 9%, from $ 59.7 billion in 2017 to around $ 64.8 billion in 2019, but the net profit figure declined by 47% during the same. period. This could be attributed to the increase in the cost of insured benefits from 56.6% of income in 2017 to 60.3% in 2019 and the one-time impact of US tax law in 2017.

While the company experienced steady growth in revenue over 2017-2019, its P / E multiple increased. We believe the stock is likely to see some upside despite the recent rally and the potential weakness of a recession triggered by the Covid outbreak. Our dashboard “What factors caused Prudential Financial’s stock to fluctuate by 30% between the end of 2017 and now? “ has the underlying numbers.

Prudential Financial’s P / E multiple has grown from just over 6x in fiscal 2017 to around 9x in fiscal 2019. While the company’s P / E is now around 8x , this leaves some room for improvement when the current P / E is compared to the levels. seen in recent years – P / E multiple of around 9x at end 2019.

So where is the stock going?

The Covid-19 pandemic and the economic downturn have shifted the focus of customers from long-term survivability to short-term survivability. As a result, Prudential Financial’s premium revenue suffered in the first two quarters of 2020. However, with some improvement in economic conditions, the figure improved in the third quarter – cumulative net premiums out of nine. months are still slightly lower than the previous year. . Positive growth in international insurance business in the first nine months is a positive sign, followed by some recovery in the Workplace Solutions division in the US in the third quarter. On the other hand, the low interest rate environment is likely to hurt its net interest income, which is very important for the profitability of any insurance company. As we expect economic conditions to improve over the next few months, interest rates are unlikely to recover immediately. All in all, we expect Prudential Financial revenue to see some recovery in the following quarters, raising its share price in the short term.

The actual recovery and its timing depend on the wider containment of the spread of the coronavirus. Our dashboard Trends in Covid-19 cases in the United States provides insight into the spread of the pandemic in the United States and contrasts with trends in Brazil and Russia. Following the stimulus from the Fed – which set a floor on fear – the market was willing to “look through” the current period of weakness and take a longer view. With investors focusing their attention on the 2021 results, valuations become important in finding value. Although market sentiment may be fickle, and evidence of a slight uptick in new cases could scare investors again.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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