Prudential Financial (NYSE: PRU) is expected to release its results for the second quarter of fiscal 2021 on Tuesday, August 3 (after market close). We expect Prudential Financial to exceed consensus estimates for both revenue and earnings. The insurance giant topped profit estimates in the last quarter, mainly due to lower benefits and spending as a percentage of revenue, leading to a significant increase in its net profit from – $ 270 million to 2.8 billion dollars in the quarter. In addition, the company saw growth in business income, investment management and net investment income in the United States. We expect the same trend to be driving the results for the second quarter of fiscal 2021 as well.
Our forecast indicates that Prudential Financial valuation is around $ 109 per share, or 8% above the current market price of around $ 100. Check out our interactive dashboard analysis at Prudential Financial pre-earnings: what to expect in the second quarter? for more details.
(1) Revenue expected ahead of consensus estimates in Q2
Trefis estimates that Prudential Financial’s revenue in the second quarter of 2021 will be around $ 13.95 billion, up 2% from the consensus estimate of $ 13.71 billion. The company reported revenue of $ 57 billion in 2020, down 12% year-over-year, mainly due to lower premiums. On the flip side, its investment management revenue grew 16% year-over-year thanks to an increase in assets under management (AuM) – the segment contributes nearly 7% of revenue. Additionally, despite the decline in investment returns, the company’s net investment income was almost on par with 2019, as the negative impact of lower returns was offset by growth in investable assets. While premiums were still down in the first quarter of 2021, its net investment income saw some recovery. In addition, the investment management segment continued its growth momentum during the quarter. We expect the same trend to govern the second quarter results.
Going forward, we expect some improvement in premiums and policy costs in fiscal 2021, thanks to a recovery in economic conditions. In addition, the investment management segment is expected to experience continued growth driven by inflows from AuM. That said, investment returns are expected to remain below pre-Covid-19 levels for some time to come. However, an increase in assets to invest will likely offset the effect. Overall, Prudential Financial’s revenue is expected to remain around $ 62.5 billion in fiscal 2021. Our dashboard on Prudential Financial revenue offers more details on the business segments.
2) EPS likely to exceed consensus estimates
Prudential Financial’s adjusted earnings per share (EPS) in the second quarter of 2021 is expected to be $ 3.08 per Trefis analysis, nearly 2% above the consensus estimate of $ 3.02. The company’s profitability figures saw a sharp decline in 2020, driven by benefits and higher expenses as a% of revenue. This reduced the EPS figure from $ 10.23 to $ -1.00 during the year. However, adjusted net income fell from $ -270 million to $ 2.8 billion in the first quarter due to lower benefits and expenses as a percentage of revenue – from 102.5% a year ago to 80%. We expect the same trend to continue in the second quarter of fiscal 2021 results.
Prudential Financial revenues are expected to grow 10% year-on-year in fiscal 2021. Additionally, net profit margin is expected to recover close to 2019 levels. Overall, this will allow PRU to post a EPS of about $ 10.31 for the current year.
(3) Estimated share price 8% higher than current market price
Through our Prudential Financial valuation, with an EPS estimate of around $ 10.31 and a P / E multiple just below 11x in fiscal 2021, that translates to a price of $ 109, or 8% above the price. current market of about $ 100.
Note: P / E multiples are based on the stock price at the end of the year and reported (or expected) adjusted earnings for the entire year
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