Prudential Financial, Inc. PRU has been gaining momentum from its solid U.S and international businesses, and strong financial position.
The stock has seen its estimates for 2020 and 2021 move up 1.5% and 0.4%, respectively, in the past 30 days. The expected long-term earnings growth rate is 9%, better than the industry’s average of 6.5%.
The company has a trailing four-quarter earnings surprise of 2.43%, on average.
Factors Driving Prudential
This Zacks Rank #3 (Hold) multiline insurer continues to benefit from strong retirement, group insurance and individual annuities & individual life businesses across the United States. The company makes constant efforts to improve product offerings and expand customer reach. This has aided earnings from its U.S. businesses to witness a four-year (2016-2019) CAGR of 4.5%.
Moreover, Prudential boasts of a strong international footprint, which has resulted in earnings from international businesses registering a four-year CAGR of 3.3%. An aging population has led to rise in demand for enhanced retirement solutions, which has provided ample opportunities for the company to expand business in Japan. It has also been making constant efforts to foray further into the emerging markets of Latin America, China, Southeast Asia and Africa, where there is a spike in demand for protection and savings products due to lower insurance penetration.
Furthermore, Prudential Global Investment Management (PGIM), which generates robust investment performance across diverse set of asset classes, has been bolstering Prudential’s organic growth. With four-year CAGR earnings of 8.2%, PGIM certainly provides a competitive edge to the company’s U.S. and international businesses. Needless to say, the company also engages in prudent mergers and acquisitions (M&A) in a bid to boost organic growth.
The multiline insurer has been shifting focus toward repricing products and including more lower risk and less capital-intensive products in its portfolio, which bodes well amid the current lower interest rate environment. In an attempt to curb costs, the company has set a target of $140 million cost savings for 2020, out of which $75 million has been achieved in the first half of 2020. The company aims to achieve cost savings target of $500 million by 2022.
Additionally, Prudential boasts a strong balance sheet with strong cash balance and access to about $4 billion of credit facility. It exited the second quarter with total cash and cash equivalents of $21.1 billion, which is sufficient to cover the company’s debt obligations. The total debt to total capital of 24.3% at second-quarter end remains lower than 24.4% at 2019-end.
Robust cash flows enable Prudential to undertake shareholder-friendly moves via dividend hikes and share buybacks. Its dividend payments have witnessed a 12-year CAGR of 19% and currently yields 6.4%, which is better than the industry average of 2.9%.
Shares of this multiline insurer have lost 13.2% in a year compared with the industry’s decline of 15%.
However, we remain concerned about the company’s high expenses incurred, which has been putting pressure on margins. Its net margin at second-quarter came in at a negative figure of 0.2%, which compares unfavorably with year-over-year figure of 6.4%. Nevertheless, we believe that the company’s strong fundamentals will help it to bounce back in the days ahead.
Stocks to Consider
Some better-ranked stocks in the same space include Assurant, Inc. AIZ, Old Republic International Corporation ORI and James River Group Holdings, Ltd. JRVR, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Assurant is a global provider of risk management solutions in the housing and lifestyle markets. It has a trailing four-quarter earnings surprise of 6%, on average.
Old Republic primarily provides underwriting and risk management services for a wide variety of coverages mostly in the general and title insurance fields. It surpassed estimates in each of the preceding four quarters, the average surprise being 36.72%.
James River Group owns and operates specialty insurance and reinsurance companies. It has a trailing four-quarter earnings surprise of 14.86%, on average.
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