At $ 91, Prudential Financial stock is slightly elevated


[Updated 03/18/2021] Update of the prudential financial assessment

Prudential financial actions (NYSE: PRU) has risen 133% from the lows of March 23 last year and at its current price of $ 91 per share it is 5% above its fair value of $ 87 – Trefis estimate for Prudential Financial valuation. The insurance giant has beaten consensus estimates for revenue and profit in its recently released fourth quarter results. It reported total revenue of $ 16.03 billion on a US GAAP basis, down 17% year-on-year. This decrease is mainly due to a 26% year-over-year decrease in net premiums, partially offset by a 44% increase in asset management fees, commissions and other income. Notably, net realized investment gains (losses) fell from – $ 210 million in the fourth quarter of 2019 to – $ 1.7 billion in the fourth quarter of 2020.

The company reported revenue of $ 57.03 billion for the full year of 2020, 12% lower than in 2019. The decline is mainly due to a 9% year-over-year decline net bonuses which represent approximately 55% of total income. He mainly suffered from the decline in premiums from US Workforce and US Individual Solutions due to the impact of the Covid-19 crisis. While the company’s net investment income saw a marginal decline in 2020, it was the growth in the value of accounts receivable that offset the impact of declining investment returns. The prevailing decline in interest rates has had a negative impact on investment returns, net interest margins and net investment returns. While US Treasury yields have seen some improvement over the past month, they are still below pre-Covid-19 levels, and full recovery is expected to take some time. That said, net premiums and policyholder costs are expected to experience some growth over the current year as economic conditions improve. Overall, the above factors will likely help Prudential Financial revenue earn $ 63.2 billion in fiscal 2021. In addition, the net income margin is expected to improve due to lower policyholder benefits and lower general and administrative expenses as a percentage of revenue , leading to EPS of $ 9.69 for fiscal 2021. This coupled with a P / E multiple of about 9x, will lead to a valuation of $ 87.

[Updated 12/03/2020] Prudential Financial Stock is trading above fair value

Having gained more than 100% since the March low and at its current price of just under $ 79 per share, Prudential financial actions (NYSE: PRU) is 10% above its fair value of $ 72 – Trefis estimate for Prudential Financial valuation. In its recently released third quarter results, PRU beat consensus earnings estimates, while revenues underperformed. It reported total revenue of $ 15.42 billion, 2% more than in the third quarter of 2019. This could be attributed to a 5% growth in international insurance business coupled with an increase of 12% of the American division Workforce Solutions. Notably, net realized investment gains (losses) decreased from $ 853 million in the third quarter of 2019 to – $ 79 million in the last quarter.

We expect the company to report $ 60.9 billion in revenue for 2020, about 6% lower than a year ago. Our forecast is based on our belief that the economy should see some improvement in the last quarter, which will benefit total premiums and net investment income. Net income for the year is expected to be reduced by 12% due to higher operating expenses, reducing revenue per share to $ 9.11 for fiscal 2020. After, Prudential financial income are expected to reach $ 62.7 billion in fiscal 2021, primarily driven by growth in international insurance business. Additionally, net income is expected to see some improvement, leading to EPS of $ 10.12 for fiscal 2021. This, coupled with a P / E multiple of just above 7x, will lead to a valuation of $ 72. .

[Updated 9/01/2020] Prudential Financial Stock has limited potential

Prudential financial actions (NYSE: PRU) lost nearly 59% – from $ 95 at the end of 2019 to around $ 39 at the end of March – then jumped 73% to around $ 68 now. But that means it’s still 28% less than at the start of the year!

There were 2 clear reasons for this: The Covid-19 epidemic and the economic downturn have brought down market expectations for 2020 and consumer demand in the short term. This is likely to have an impact on insurance premiums and net investment income, which are the two main sources of income for Prudential Financial. However, the Fed’s multibillion-dollar stimulus measures in late March helped stop negative market sentiment, which is also evident from the rally in stocks after this point.

But, we believe that Prudential Financial stock has already reached its growth potential and has limited the upside.

Trefis estimates Prudential Financial valuation at around $ 71 per share – slightly above the current market price – based on an upcoming trigger explained below and a risk factor.

The trigger is an improved trajectory for Prudential Financial revenue over the second half of the year. We expect the company to report 2020 revenue of $ 60.4 billion, about 7% lower than the 2019 figure. Our forecast stems from our belief that the economic scenario should show some improvement in the third trimester. Recently released US consumer spending data, which shows month-on-month growth of 8.5% in May, followed by 5.6% mom in June give more weight to our expectations. If the trend continues in the coming months, it should improve both net premiums figure and insurance premium investment income. The latter is very critical to the profitability of an insurance company and has improved due to the recent improvement in the securities market. This, in turn, would benefit the earnings trajectory over the next few months. Net profit for the year is expected to fall to $ 3.6 billion, down 14% year-on-year, reducing EPS to $ 9.14 for fiscal 2020.

After that, Prudential Financial’s revenue is expected to improve to $ 62.1 billion in fiscal 2021, primarily driven by growth in retirement solutions in the United States and international insurance segments. This is expected to allow EPS’s figure to hit $ 10.09 for fiscal 2021, a 10% year-over-year increase.

Finally, how much should the market pay per dollar of Prudential Financial profits? Well, to make almost $ 10.09 a year from a bank today, you would have to deposit around $ 1110 into a savings account, which is around 110 times the desired earnings. At the current Prudential Financial share price of around $ 68, we’re talking about a P / E multiple of around 7x, which we think is appropriate.

Having said that, insurance is a risky business right now. Growth looks less promising and the short-term outlook is less than optimistic. What is behind this?

Prudential Financial is a global insurance company with approximately $ 768 billion in identifiable assets between its U.S. and international insurance segments (according to fiscal 2019 data). The company derives approximately 22% of its total revenues from the revenues generated by the investment of insurance premiums. Therefore, its business model is very sensitive to variations in investment returns. While the broader markets have been on a growth path (up 55%) since the March trough, any further deterioration in the economic situation or an unanticipated jump in the number of Covid-19 cases may turn the tide and could have a negative impact on PRU turnover.

The same trend is visible through Prudential Financial peer – American international group. Its income is also expected to be reduced in fiscal 2020 due to lower premiums and lower investment income. Additionally, American International Group stock is currently trading at a price of around $ 30, but is expected to reach EPS of around $ 3.53 for fiscal 2021.

While Prudential financial actions may have moved, 2020 has created many price discontinuities that may offer attractive business opportunities. For example, you will be surprised at how the valuation of stocks for Qualys vs. Vertex Pharmaceuticals shows a disconnect with their relative operational growth. You can find a lot of these discontinuous pairs here.

See everything Trefis price estimates and To download Trefis data here

What is behind Trefis? See how this fuels the new collaboration and assumptions Finance Directors and Financial Teams | Product, R&D and marketing teams


Comments are closed.