Is Prudential Financial Stock Fairly Priced?

PRU: Prudential Financial logo
Prudential Financial

Prudential Financial’s stock (NYSE: PRU) has gained approximately 11% YTD as compared to the 3% drop in the S&P500 index over the same period. Further, at its current price of $121 per share, it is trading just above its fair value of $120 – Trefis’ estimate for Prudential Financial’s valuationThe insurance giant recently released its fourth-quarter results, outperforming the consensus estimates for earnings and revenues. It reported total revenues of $16.4 billion, which is 2% more than Q4 2020. This was due to an increase in the net realized investment gains (loses) from -$1.7 billion to $878 million. However, the impact was partially offset by a 12% y-o-y drop in the total premiums and a 36% decline in the asset management fees & other income. The premiums mainly suffered due to an 18% decrease in the U.S. business premiums, driven by a 36% decline in the U.S retirement sub-segment. Overall, the adjusted net income increased 47% y-o-y $1.19 billion, leading to a quarterly EPS of $3.13. The improvement in profitability numbers was because of a decrease in total benefits & expenses as a % of revenues from 94% to 92%.

The company’s total revenues increased 24% y-o-y to $70.9 billion in 2021. It was driven by a 25% growth in the U.S. insurance segment, followed by an 8% increase in the investment management division. The U.S. insurance segment mainly benefited from a significant increase in the revenues from the retirement sub-segment. On the flip side, the international insurance business grew a meager 2% y-o-y. All in all, the revenue growth, coupled with a decrease in total benefits & expenses from 101% to 87%, translated into an adjusted net income of $7.6 billion – up from -$395 million in 2020.

Prudential financial is heavily dependent on net investment income (NII) for its profitability. Notably, the company derives close to 30% of the top line from NII. We anticipate the NII to likely benefit from an increase in the interest rates in FY2022. Further, recovery in the economy will likely drive the total premiums. Overall, Prudential Financial revenues are expected to remain around $64 billion in FY2022. Additionally, PRU’s adjusted net income margin is likely to see a slight drop from the 2021 levels. It will likely result in an adjusted net income of $5.4 billion and an annual EPS of $14.64. This coupled with a P/E multiple of just above 8x will lead to the valuation of $120.

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Here you’ll find our previous coverage of Prudential Financial stock, where you can track our view over time.

What if you’re looking for a more balanced portfolio instead? Here’s a high-quality portfolio that’s beaten the market consistently since the end of 2016.


 Returns Mar 2022
MTD [1]
YTD [1]
Total [2]
 PRU Return 8% 11% 16%
 S&P 500 Return 5% -3% 106%
 Trefis MS Portfolio Return 4% -6% 269%

[1] Month-to-date and year-to-date as of 3/30/2022
[2] Cumulative total returns since the end of 2016


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