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Analyst Blog

On Aug 20, we issued an updated research report on Prudential Financial, Inc. (PRU - Analyst Report). Earlier during the month, the company reported core earnings of $2.49 per share in the second quarter, beating the Zacks Consensus Estimate of $2.35. Earnings also grew 8.3% on a year-over-year basis.
 
Results benefitted from higher fees, mainly driven by growth in account values and assets under management in the company’s Annuities and Asset Management businesses; improved claims experience in Group Insurance business; as well as continued growth of the International Insurance business. The company’s bottom-line strength was also supported by lower share count due to share buybacks.
 
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 integration of the Individual Life Insurance business of The Hartford Financial Services Group, Inc. (HIG) acquired in Jan 2013 remains on track and is delivering product and distribution benefits. 
 
The company also has significant overseas business with presence in Japan, Korea and Brazil and is trying to tap future potential opportunities in India, China and Malaysia. The company’s international operations are expected to accrue significantly to the company’s return on equity.    
 
Prudential is also a leading global asset manager with a diversified product suite and a broad range of investment capabilities. The company’s assets under management have grown at an annual rate of 14% over the past 5 years. 
 
Additionally, Prudential’s Retirement segment is set to greatly benefit from its penetration into the pension risk transfer business. The company has a strong foothold in U.K. longevity reinsurance market.
 
However, we remain cautious on Prudential’s U.S. Group insurance business as poor disability margins pressure results. Also, Prudential’s exposure to products which guarantees minimum return and stricter capital standards with regard to SIFI regulations, will keep its capital under pressure.  
 
This Zacks Rank #3 (Hold) insurer has witnessed an increase in earnings estimates for 2014 following better-than-expected second-quarter results. The Zacks Consensus Estimate for 2014 has gone up 1.7% to $9.67 as 13 of 16 estimates moved north over the last 30 days. 
 
Other Stocks to Consider
 
Better-ranked stocks worth considering include, FBL Financial Group Inc. (FFG - Snapshot Report), BB Seguridade Participa (BBSEY) and Fortegra Financial Corporation (FRF - Snapshot Report).All these stocks sport a Zacks Rank #2 (Buy).

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