Prudential financial stocks have limited potential

Prudential Financial (NYSE: PRU) stock is down about 3% year-to-date compared to the S&P500 index’s 14% decline over the same period. Moreover, at its current price of $105 per share, it is trading just 7% below its fair value of $113 – Trefis’ estimate for Prudential Financial valuation. The insurance giant posted mixed results in the first quarter of 2022, with earnings beating consensus but revenue missing the target. It reported total revenue of $13.2 billion, down 22% year-on-year, mainly due to lower net realized gains (losses) on investments of $2.1 billion to -316 millions of dollars. Additionally, asset management fees, commissions and other income decreased from $1.46 billion to -$238 million, primarily due to lower income from other divested and liquidated businesses. That said, the negative impact was somewhat offset by a 5% increase in premiums. On the cost front, total benefits and expenses as a % of income also increased significantly due to higher insured benefits. Overall, this translated to adjusted net income of -$31 million, down from $2.8 billion in the prior year period.

The company’s revenue improved 24% year-on-year to $70.9 billion in 2021. That’s thanks to 12% premium growth, followed by a 5% increase net investment income and a 24% increase in asset management fees and other income. In addition, total realized investment gains (losses), net, increased from -$3.9 billion to $4 billion. In total, total benefits and expenses as a percentage of revenue increased from 101% to 87%, resulting in adjusted net income of $7.6 billion, compared to -$395 million in 2020.

Central banks around the world have started raising benchmark interest rates after about two years of a low rate environment. This decision will likely contribute to the company’s net investment income. In addition, premiums will likely benefit from the recovery of the economy. Globally, Prudential financial income are expected to remain around $59.9 billion in fiscal 2022. In addition, the PRU adjusted net margin is expected to stabilize around 8%. This will likely translate to adjusted net income of $4.9 billion and annual EPS of $13.25. This, coupled with a P/E multiple just below 9x, will lead to a valuation of $113.

Here you will find our previous coverage of Prudential Financial stocks, where you can follow our view over time.

With stock prices falling precipitously across all sectors, we may be heading into a bear market for the first time since March 2020, when the Covid-19 outbreak triggered a stock market crash. We capture key Dow Jones trends during and after major stock market crashes in our interactive dashboard analysis,’Comparison of stock market crashes.’

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