We reiterate our 'Neutral' recommendation on the shares of
Prudential Financial Inc.
) following its third-quarter earnings release, which reflected a
massive improvement of 82% in earnings on a year-over-year basis.
Results, however, lagged the Zacks Consensus Estimate.
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Despite its failure to meet the estimates in the current quarter,
we remain upbeat about Prudential's long-term performance. It has
been focusing on its underlying businesses by making significant
acquisitions and shedding non-core businesses. The acquisition of
The Hartford Financial's life Insurance business will further
strengthen its Individual Life business.
Prudential's Retirement business is set to benefit from the
recently made two big pension risk transfer transactions. The
company is aggressively seeking to build its leadership position
in the pension risk transfer market, which presents a great
Prudential also has a strong international presence that provides
it with better organic growth opportunities than its peers. The
company has a strong footprint in Japan, with operations in the
region for over thirty years. It is also expanding in China,
Korea and other Asian countries. Moreover, the changing
demography of the U.S. population bodes well for the company.
Our recommendation is based on a cautious near-term outlook on
Prudential's exposure to products such as annuities and universal
life, which guarantees minimum return, will keep its capital
under strain. The company's results suffered due to the
requirement of additional reserve accretion when the low interest
rate increases the value of these liabilities. We expect
the trend to continue in the wake of the continuing low interest
Moreover, Prudential's investment portfolio remains a source of
threat due to its high exposure to commercial real estate,
through Commercial Mortgage Loans and Commercial Mortgage Backed
Securities, hedge funds and partnerships. However, we are
positive about Prudential's effective capital management.
A right mix of business and strong fundamentals have helped
Prudential garner market share from weak competitors.
Prudential's stock retains a Zacks #3 Rank, which translates into
a short-term Hold rating. Peers
American International Group Inc.
) both also retain Zacks #3 Rank and a long term 'Neutral'