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Prudential Financial’s Organic Growth Counts, High Costs Ail

Zacks

Prudential Financial, Inc. PRU has successfully catered to the growing demands and expectations of its clients for years, building a solid product and service portfolio over time. Retaining this optimism, the Zacks Rank #2 (Buy) multi-line insurer continues to evolve stronger and looks set to repeat the success streak in the near future.

Growth Projections: The Zacks Consensus Estimate for earnings per share is $10.09 on revenues of $52.10 billion for 2017. Although the top line reflects a year-over-year slip of 0.3%, the bottom line improves 10.6%. For 2018, the Zacks Consensus Estimate for earnings per share is pegged at $11.22 on $54.16 billion revenues. While earnings represent an 11.2% increase, revenues reflect a 3.9% rise.

Prudential Financial has long-term expected earnings per share growth of 8.5%.

Northbound Estimates: The Zacks Consensus Estimate for 2017 has inched up 0.1% in the last 60 days, while the same for 2018 has nudged up 0.2% over the same time frame. This is reflected in the company’s Zacks Rank.

An Outperformer: Shares of Prudential Financial have surged 29.3% in a year’s time, outperforming the industry’s 21.8% rally. We expect the company’s sustained operational performance, improving asset under management and a robust capital position to drive the stock higher in the near term.



Attractive Valuation: Looking at the company’s price-to-book ratio, which is the best multiple for valuing insurers because of large variations in their earnings results from one quarter to the next, valuation looks attractive at the current level. The company has a trailing 12-month P/B ratio of 0.9, falling significantly below the industry average of 1.4. Also, the stock carries Value Score of A. Back-tested results have shown stocks with Value Scores of A or B when combined with a Zacks Rank #1 (Strong Buy) or #2 are best investment bets.

Earnings ESP and Surprise History: The company is set to release third quarter results on Nov 1, 2017. Our proven model conclusively shows that it is likely to beat on earnings this time around as the company has a favorable Zacks Rank #2 and an Earnings ESP of 0.74%. Prudential has surpassed the Zacks Consensus Estimate in three of the last four quarters.

Growth Drivers

The insurer will continue to benefit from its massive reach and an in-depth expertise in the pension risk transfer (PRT) business. The company is also on track to establish a leadership position in the potentially strong PRT market, suitable to mobilize the insurance company’s skills in the management of group annuity.

Interestingly, the company arrived at a decision to realign U.S. businesses to position itself better to leverage business mix and capture the long-term growth opportunities within and across domestic businesses.

The company’s international operations too have placed it well for long-term growth. It is expected to gain from the AFP Habitat buyout, completed in the first quarter of 2016. The transaction, expanding its international footprint, is estimated to result in a stable rise, steady earnings and an adequate cash flow generation. Therefore, the organization remains focused on diversifying activities to enable it to accelerate overall growth and keep up the streak in the immediate term as well.

Additionally, Prudential has prosperously generated investors’ value. It has been approved to buy back worth $1.25 billion shares in 2017. The company remains committed toward maintaining a solid capital and liquidity status, thus protecting itself from market volatility.

Near-Term Headwinds: However, an unfavorable currency impact and regulatory control remain challenges to tide over. In addition, rising expenses have been spoilers for the insurer and that does not expect a turnaround anytime soon.

Other Stocks to Consider

Some other stocks worth considering from the insurance industry are Principal Financial Group, Inc. PFG, Cigna Corp. CI and Cincinnati Financial Corp. CINF, each carrying the same bullish Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Principal Financial offers retirement, asset management plus insurance products and services to businesses, individuals and institutional clients worldwide. The company delivered positive surprises in all the last four quarters with an average beat of 7.26%.

Cigna Corporation offers insurance and health-related products and services in the United States and internationally. The company delivered positive surprises in all the trailing four quarters with an average beat of 9.98%.

Cincinnati Financial deals in property casualty insurance business in the United States. The company delivered positive surprises in all the last four quarters with an average beat of 14.97%.

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