Prudential Financial, Inc. PRU is slated to report third-quarter 2020 results on Nov 3, after market close. The company delivered an earnings surprise of 7.56% in the last reported quarter.
Factors to Consider
Prudential’s third-quarter results are likely to reflect the re-pricing of products, shift toward lower risk and less capital-intensive products, growth in asset-based businesses, solid international operations with focus on directing earnings mix to higher-growth markets and deeper reach in the pension risk transfer market.
Growth in Japan business, leadership position in Japan life insurance market and businesses in Brazil, Chile, Indonesia, India, China and Africa are likely to have contributed to the performance of the International Insurance segment. Sales in Japan are likely to have normalized.
The retirement business is expected to have generated improved risk-adjusted returns, specifically with less competition, improved risk profile and leadership in the pension risk transfer business. Given the pandemic, pension risk transfer transactions are likely to have lowered attributable to funding levels of pension plans.
U.S. Financial Wellness is likely to have benefited from advice, investment, and retirement income and protection solutions, thus aiding full-service retirement plan sales and Group Insurance sales.
PGIM is likely to have benefited from a significant pool of assets and a strong balance sheet. However, lower transaction volumes and a slowdown in client activity are likely to have weighed on sales.
As a result of pricing actions, product pivots and disruptions in distribution due to COVID-19, the company estimates sales of individual annuities and Individual Life to have declined.
The company estimates net investment income to be lower by $15 million in the third quarter, reflecting the difference between new money rates and disposition yields on investment portfolio.
The company expects lower seasonal expenses, partially offset by higher implementation costs, to result in a net benefit of $75 million in the second quarter.
The company expects to incur operating costs of $25 million in the third quarter due to COVID-19 pandemic. Nevertheless, the company expects implementation costs to reduce by $130 million in the third quarter. Prudential anticipates incremental operating costs of $40 million, due to the pandemic, to be incurred in the third quarter. Travel and entertainment expenses are also expected to have declined.
Prudential estimates earnings per share to be $2.63 in the third quarter, which includes net mortality claims of around $55 million. Fatality rates due to the COVID-19 pandemic, which have declined to some extent, are anticipated to reduce operating income by $70 million.
The Zacks Consensus Estimate for earnings per share is pegged at $2.69, indicating 16.5% decrease from the year-ago period reported figure. The Zacks Consensus Estimate for revenues is pegged at nearly $13.8 billion, indicating an increase of about 7% from the year-ago reported figure.
Prudential Financial, Inc. Price and EPS Surprise
What the Zacks Model Says
Our proven model shows does not conclusively predict an earnings beat for Prudential this time around. This is because the stock needs to have the right combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). This is not the case as you can see below.
Earnings ESP: Prudential has an Earnings ESP of 0.00%. This is because the Most Accurate Estimate and the Zacks Consensus Estimate are pegged at $2.69. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.
Zacks Rank: Prudential currently carries a Zacks Rank of 4 (Sell).
Stocks to Consider
Some insurance stocks with the right combination of elements to come up with an earnings beat this time around are:
Cigna Corporation CI has an Earnings ESP of +1.86% and a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank stocks here.
CNO Financial CNO has an Earnings ESP of +2.52% and a Zacks Rank #3.
MGIC Investment MTG has an Earnings ESP of +14.89% and a Zacks Rank of 3.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.