Prudential Financial Stock Has Limited Potential

+7.08%
Upside
105
Market
113
Trefis
PRU: Prudential Financial logo
PRU
Prudential Financial

Prudential Financial’s stock (NYSE: PRU) has lost roughly 3% YTD as compared to the 14% decline in the S&P500 index over the same period. Further, at its current price of $105 per share, it is trading just 7% below its fair value of $113 – Trefis’ estimate for Prudential Financial’s valuationThe insurance giant posted mixed results in the first quarter of 2022, with earnings beating the consensus but revenues missing the mark. It reported total revenues (GAAP) of $13.2 billion – down 22% y-o-y, primarily due to a decrease in net realized investment gains (losses) from $2.1 billion to -$316 million. Further, the asset management fees, commissions & other income fell from $1.46 billion to -$238 million, mainly because of a drop in revenue from other divested and runoff businesses. That said, the negative impact was somewhat offset by a 5% rise in the premiums. On the cost front, total benefits & expenses as a % of revenues also witnessed a significant spike due to higher policyholder’s benefits. Overall, it translated into an adjusted net income of -$31 million, down from $2.8 billion in the previous year period. 

The company’s top-line improved 24% y-o-y to $70.9 billion in 2021. It was because of a 12% growth in the premiums, followed by a 5% increase in the net investment income, and a 24% rise in the asset management fees & other income. Further, total realized investment gains (losses), net jumped from -$3.9 billion to $4 billion. Altogether total benefits & expenses as a % of revenues declined from 101% to 87%, leading to an adjusted net income of $7.6 billion – up from -$395 million in 2020.

The central banks across the world have started to increase the benchmark interest rates after around two years of a low-interest-rate environment. This move will likely help the net investment income of the company. In addition to this, the premiums will likely benefit from the recovery in the economy. Overall, Prudential Financial revenues are forecast to remain around $59.9 billion in FY2022. Additionally, PRU’s adjusted net income margin is likely to stabilize at around 8%. It will likely result in an adjusted net income of $4.9 billion and an annual EPS of $13.25. This coupled with a P/E multiple of just below 9x will lead to the valuation of $113.

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

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 Returns Jun 2022
MTD [1]
2022
YTD [1]
2017-22
Total [2]
 PRU Return -1% -3% 1%
 S&P 500 Return 0% -14% 84%
 Trefis Multi-Strategy Portfolio 2% -18% 223%

[1] Month-to-date and year-to-date as of 6/7/2022
[2] Cumulative total returns since the end of 2016

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