Prudential Financial Stock To Top The Estimates In Q2?

by Trefis Team
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PRU
Prudential Financial
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Prudential Financial (NYSE: PRU) is scheduled to report its fiscal Q2 2021 results on Tuesday, August 3 (after the market closes). We expect Prudential Financial to top the consensus estimates for revenues and earnings. The insurance giant surpassed the earnings estimates in the last quarter, mainly driven by lower benefits and expenses as a % of revenues, leading to a significant increase in its net income from -$270 million to $2.8 billion in the quarter. Further, the company reported growth in U.S. business revenues, investment management, and net investment income. We expect the same trend to drive the second-quarter FY2021 results as well.

Our forecast indicates that Prudential Financial’s valuation is around $109 per share, which is 8% above the current market price of around $100. Look at our interactive dashboard analysis on Prudential Financial’s pre-earnings: What To Expect in Q2? for more details. 

(1) Revenues expected to be ahead of consensus estimates in Q2

Trefis estimates Prudential Financial’s fiscal Q2 2021 revenues to be around $13.95 billion, 2% above the $13.71 billion consensus estimate. The company reported revenues of $57 billion in 2020 – down 12% y-o-y, primarily due to lower premiums. On the flip side, its investment management revenues grew 16% y-o-y driven by higher assets under management (AuM) – the segment contributes close to 7% of the top-line. Further, despite lower investment yields, the company’s net investment income was almost at par with the 2019 figure, as the negative impact of lower yields was offset by growth in investable assets. While the premiums were still down in the first quarter of 2021, its net investment income saw some recovery. Further, the investment management segment continued its growth momentum in the quarter. We expect the same trend to govern the second-quarter results.

Moving forward, we expect the premiums and policy fees to see some improvement in FY2021, driven by a recovery in the economic conditions. Further, the investment management segment is likely to record continued growth driven by AuM inflows. That said, the investment yields are likely to remain below the pre-Covid-19 levels for some more time. However, an increase in investable assets will likely offset its effect. Overall, Prudential Financial’s revenues are likely to remain around $62.5 billion in FY2021. Our dashboard on Prudential Financial’s revenues offers more details on the company’s segments.

2) EPS likely to beat the consensus estimates

Prudential Financial’s Q2 2021 adjusted earnings per share (EPS) is expected to be $3.08 per Trefis analysis, almost 2% above the consensus estimate of $3.02. The company’s profitability figures recorded a steep drop in 2020, driven by higher benefits & expenses as a % of revenues. This reduced the EPS figure from $10.23 to -$1.00 in the year. However, the adjusted net income increased from -$270 million to $2.8 billion in Q1 due to lower benefits & expenses as a % of revenues – from 102.5% in the year-ago period to 80%. We expect the same trend to continue in FY2021 Q2 results.

Prudential Financial’s revenues are likely to increase 10% y-o-y in FY2021. Further, the net income margin is likely to recover close to the 2019 level. Overall, it will enable PRU to report an EPS of around $10.31 in the current year.

(3) Stock price estimate 8% more than the current market price

Going by our Prudential Financial’s valuation, with an EPS estimate of around $10.31 and a P/E multiple of just below 11x in fiscal 2021, this translates into a price of $109, which is 8% above the current market price of around $100.

Note: P/E Multiples are based on Share Price at the end of the year and reported (or expected) Adjusted Earnings for the full year

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