Can International Focus Help Prudential Catch Up With Metlife?

by Trefis Team
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Prudential Financial
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Prudential Financial (NYSE:PRU) is a global financial company with operations in the United States, Asia, Europe and Latin America. It offers a wide array of financial products and services, including life insurance, annuities, retirement-related services, mutual funds, investment management and real estate services to retail customers, high net-worth individuals (HNIs), small- to medium-businesses, institutional investors as well as corporates. Its business model faces stiff challenges and competition from offerings by its global competitors like AIG, HIG, MetLife, Travelers etc., which can impact Prudential Financial’s Stock.

Trefis has analyzed changes in revenues across operating segments for Prudential vs. MetLife over the last four years in an interactive dashboard, along with our forecast for 2019. Prudential’s revenues have benefited over recent years due to strong performance by its international operations. Trefis estimates Prudential’s valuation to be $112 per share which is 25% higher than the current market price. You can see more Trefis data for Insurance companies here.

Although Prudential Financial has a more diversified business, its total revenues are lower than MetLife

  • Prudential Financial reported total revenues of $63 billion in 2018, which was 7% less than MetLife
  • Revenues for both MetLife and Prudential have grown by roughly 10% over the last four years.
  • We expect MetLife revenues to drop by 3.9% y-o-y in 2019, whereas Prudential revenues would decrease by 2.3% to $61.5 billion.

Prudential Financial has seen steady growth in International Insurance premiums & policy fees over the last four years, whereas MetLife has struggled in this segment.

  • MetLife reported $14.8 billion in International Insurance revenues in 2015, which was 1% less than Prudential’s figure. However, this difference has widened considerably over the last 4 years – MetLife reported revenues of $14.9 billion in 2018 which was 12% less than its peer.
  • The upward trend in Prudential’s revenues can be attributed to increased focus on emerging markets driven by low insurance penetration and improvement in per capital income.
  • This is also evident from higher average account figure for the segment – Prudential’s average account balance of $222.6 billion in 2018 was 36% more than MetLife.
  • Although MetLife’s average account balance for International Insurance segment has grown 21% from $116.5 billion in 2015 to $141.6 billion in 2018, Prudential’s figure has grown 29% over the same period.

MetLife has higher investment income, although it is growing at a slower pace than Prudential.

  • Both the companies invest insurance premiums collected across all its insurance products in assets such as bonds, equities, and mortgages.
  • Notably, MetLife reported $17.2 billion in investment income in 2018, which was 33% more than Prudential’s figure.
  • Although MetLife’s investment income has grown 5% over the last four years (from $16.4 billion in 2015 to $17.2 billion in 2018), the corresponding figure for Prudential has grown 15% over the same period.
  • In 2018, revenue share of Investment Income declined for both the companies due to lower asset valuations.

Other points to consider

  • MetLife has higher U.S Insurance premiums & policy fees, although its segment account balance is significantly lower. Its segment revenues have grown 33% from $22.6 billion in 2015 to $30.1 billion in 2018, whereas Prudential’s growth figure has been around 28% over the same period.
  • Further, this segment is the highest contributor to total revenues for both the companies.
  • Prudential Financial’s operating margin over 2015-2017 was higher than its peer. Although MetLife surpassed Prudential’s figure in 2018, Prudential’s operations have historically been more efficient than MetLife’s.

Conclusion

  • Prudential Investment income is growing at a higher pace than MetLife. Further, its international revenues are growing at a notably faster rate thanks to higher penetration in emerging markets. If the current trend continues or accelerates, Prudential’s revenues could surpass Metlife’s over coming years.

Per Trefis, Prudential’s Revenues (shows key revenue components) are expected to cross $61.5 billion in 2019 – leading to an EPS of $12.47 for the year. This EPS figure coupled with a P/E multiple of 9.0x, works out to a price estimate of $112 for Prudential’s stock (shows cash and valuation analysis), which is 25% higher than the current market price.

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