Prudential Financial: Evenly Poised - Analyst Blog

On May 15, we issued an updated research report on Prudential Financial Inc. PRU. Last week the company reported core earnings of $2.40 per share which bettered the Zacks Consensus Estimate of $2.27 and grew 5.7% year over year. Results benefitted from strong growth in account values and assets under management which gave a boost to the Annuities, Retirement, and Asset Management businesses. The bottom line benefitted from lower insurance and annuity benefit expense.

Prudential is a niche player in the life insurance market and boasts a well-diversified business profile with reach in different markets and a broad product portfolio.

Prudential is set to benefit from the aging American population. The company will witness huge demand for retirement benefits products as baby boomers retire. 

Moreover, the acquisition of the Individual Life Insurance business of The Hartford Financial Services Group Inc. HIG at the end of 2012, will help Prudential earn a place among the top five of the largest individual life insurance companies in the U.S. in terms of new recurring premium sales.

The company also has significant overseas business which is generating strong earnings.  

Additionally, Prudential's Retirement segment is set to greatly benefit from its penetration into the pension risk transfer business.  

However, we remain watchful of Prudential's U.S. Group insurance business as poor disability margins pressure results. Also, Prudential's exposure to products like annuities and universal life, which guarantees minimum return and stricter capital standards with regard to SIFI regulations will keep its capital under strain. 

The company's exposure to below investment grade fixed income securities and a lingering low interest rate environment will keep investment income under check.

This Zacks Rank #3 (Hold) insurer has witnessed raises in earnings estimates for 2014 as well as 2015, following better-than-expected first-quarter results. The Zacks Consensus Estimate for 2014 has gone up by 16% to $9.44 as 10 of 15 estimates moved north over the last 7 days. Similarly for 2015, the same increased 0.7% to $10.03 as 6 of 14 estimates were raised over the same time frame.

Other stocks

Horace Mann Educators Corp. HMN and Old Republic International Corporation ORI carrying a Zacks Rank #1 (Strong Buy) as well as Prudential plc. PUK  with a Zacks Rank # 2 (Buy) are good investment options.