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Shares of Prudential Financial Inc. PRU have gained 15.5% year to date, underperforming the industry’s increase of 17.6% and the Zacks S&P 500 composite’s increase of 17.2% in the said time frame.
Earnings missed estimates in the last three reported quarters. Earnings increased 0.5% in the last five years, lagging the industry average of 9.7%. The expected long-term earnings growth rate is pegged at 9.7%, lower than the industry average of 12.4%.
Expenses increased 26.8% in the first half of 2024 while net margin contracted 37 basis points over the same time frame.
Debt balance increased 2.3% as of June 30, 2024. Its leverage of 71 deteriorated 108 basis points. Leverage in the trailing 12-month period compared unfavorably with the industry average of 50.8.
PRU Lags Industy and S&P YTD
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Mixed Analyst Sentiment on PRU
Two of the eight analysts covering the stock have raised estimates for 2024 while three have lowered the same over the past 30 days. For 2025, two analysts have raised estimates while two have lowered estimates over the same time frame.
The consensus estimate for 2024 has moved 3.6% south, while the consensus estimate for 2025 has moved 0.2% north in the past 30 days.
The Zacks Consensus Estimate for 2024 and 2025 earnings indicates an improvement of 14.7% and 9.1% respectively.
PRU’s Return on Capital
PRU’s return on equity has been improving since 2020, reflecting its efficiency in utilizing shareholders’ funds. However, the same over the trailing 12 months lagged the industry average.
Also, the return on invested capital in the trailing 12 months was 1%, lower than the industry average of 2.5%.
Factors Favoring Prudential
Prudential continues to benefit from its solid asset-based businesses, improved margins in the Group Insurance business and international operations. A high-performing asset management business and deeper reach in the pension risk transfer market are catalysts for long-term growth. It intends to be a global leader in expanding its access to investment, insurance and retirement security.
Prudential has emerged to be among the top five individual life insurance companies in the United States with new recurring premium sales, greater scale, expanded product offerings and broader distribution capabilities. Its leading position in universal, term and variable life insurance and expanding Retirement business.
The U.S. business segment continues to focus on growing its market-leading businesses by transforming the capabilities to improve customer experiences. It also continues expanding in the addressable market with new financial solutions, leveraging the capabilities across Prudential.
Prudential has a strong international presence that gives it more organic growth opportunities than its peers. Expanding its international business is vital for long-term growth. Prudential has a strong footprint in Japan, which offers attractive opportunities to capitalize on protection products and retirement needs and has historically generated ROE in the 20% range. Its business in Brazil has gained sufficient scale and should become an important contributor to earnings growth in the international division over the next few years. It also expanded in Malaysia, which is an attractive market, with low life insurance penetration, a well-developed regulatory environment and long-term growth potential.
PRU’s wealth distribution to shareholders is impressive. It hiked its dividend for 16 straight years and currently yields 4.3%, way above the industry average of 2.5%. The dividend yield of some other insurers, like MetLife MET and Lincoln Financial LNC, outperformed the industry average.
Parting Thoughts
Growing presence in the pension risk transfer market, higher emerging markets earnings, expanded distribution, compelling product offerings, strategic acquisitions and a solid financial position make PRU a strong contender for being in one’s portfolio.
However, an unfavorable return on capital, increasing expenses and high leverage keep us cautious.
Investors who already have this Zacks Rank #3 (Hold) stock in their portfolio should retain it as a behemoth like PRU is unlikely to disappoint. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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