Insurance Weekly Notes: Prudential’s Retirement Business Looks Strong

-8.10%
Downside
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PRU: Prudential Financial logo
PRU
Prudential Financial

Last week saw more business flowing to Prudential Financial‘s (NYSE:PRU) retirement segment. Early in the week, Prudential entered in an agreement with J.C. Penney, one of the largest retailers in the U.S., to transfer the pension obligations of 12,000 retirees and beneficiaries. ((J.C. Penney to Reduce U.S. Pension Obligations by Up to 35%, Bloomberg)) Not only will it reduce J.C. Penney’s expenses with respect to the pension obligations by nearly 35% it will add to Prudential’s business. There lies a lucrative potential for Prudential in this space; according to a research report by Mercer, as of September there was an aggregate deficit of $457 billion in the funding levels of pension funds sponsored by S&P 1500 companies. ((S&P 1500 Pension Funded Status Drops by 2% in September, Mercer Press Release)) With an increasing number of companies transferring pension obligations to insurance companies, Prudential is well-positioned to benefit.

The value of the deal won’t be until it closes by the end of the year. This comes after Prudential signed similar deals earlier in the year, most prominently with Kimberly-Clark (NYSE:KMB) for about $1.25 billion. ((Prudential signs pension transfer agreement with Kimberly-Clark Corporation, Prudential Press Release))

Prudential’s stock gained nearly 2% through the week, ending Friday’s trading at $78. We have a price estimate of $94 for Prudential’s stock, valuing the company at about $42 billion. Prudential’s valuation has seen a dramatic decline in the last three moths, starting from the crash in the financial markets that arose from the devaluation of the Chinese yuan as well continued pressure from the low interest rate environment.

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See our Complete Analysis of Prudential here