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We are reiterating our Neutral recommendation on Prudential Financial Inc. (PRU - Analyst Report) following the second quarter results, which included a 16.2% positive earnings surprise. Over the past four quarters, this life insurer delivered positive surprise with an average beat of 6.4%.
 
Why Reiterate?
 
On Aug 8, Prudential reported second quarter adjusted operating earnings of $2.30 per share, far exceeding the Zacks Consensus Estimate of $1.98. Earnings outperformance came on the back of strong contribution from each of the company’s operating segments. 
 
Prudential has 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 a huge demand for retirement benefits products as baby boomers enter retirement. 
 
Moreover, the acquisition of Individual Life Insurance business of The Hartford Financial Services Group Inc. (HIG - Analyst Report) at the end of 2012, will help this Zacks Rank #2 (Buy) company  earn a place among the top five 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.   
 
Also, Prudential’s Retirement segment is set to greatly benefit from the company’s penetration in the pension risk transfer business.   
 
On the flip side, we hold a cautious near-term outlook for 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, will keep its capital under strain.  
 
Prudential has been witnessing rising earnings estimates. Over the last 60 days, the Zacks Consensus Estimate for 2013 moved up by 4.2% to $8.67 as 15 out of 17 estimates moved north. The same for 2014 rose 0.9% to $8.97 as 10 of 17 estimates were raised over the same time frame. The expected long term earnings growth is 11.0%. 
 
Other Stocks 
 
Eastern Insurance Holdings, Inc. and FBL Financial Group Inc. (FFG - Snapshot Report) under our coverage carrying Zacks Rank #1 (Strong Buy) are worth considering.

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