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Why Is Prudential (PRU) Up 24.7% Since Last Earnings Report?

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It has been about a month since the last earnings report for Prudential (PRU - Free Report) . Shares have added about 24.7% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Prudential due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Prudential Q3 Earnings Beat Estimates, Revenues Miss

Prudential Financial, Inc.’s third-quarter 2020 operating net income of $3.21 per share beat the Zacks Consensus Estimate by 19.3%. However, the bottom line declined 0.3% year over year owing to lower contributions from U.S. Individual Solutions and Corporate and Other.

Operational Update

Total revenues of $13.3 billion increased 3.1% year over year due to higher premiums, net investment income, and increase in asset management fees, commissions and other income. However, the top line missed the Zacks Consensus Estimate by 3.5%.

Total benefits and expenses of $11.8 billion increased 9.1% year over year in the quarter. This increase in expenses was mainly due to higher insurance and annuity benefits, interest expense, and general and administrative expenses.

Quarterly Segment Update

Prudential Global Investment Management (PGIM) reported adjusted operating income of $370 million, which improved 59.5% year over year. The upside can be attributed to higher other related revenues, driven by an increase in co- and seed investment earnings, record high agency revenues, and higher incentive fees, as well as higher asset management fees, driven by an increase in average account values, partially offset by higher expenses.

PGIM assets under management improved 11% year over year to $1.443 trillion at the end of the reported quarter, driven by market appreciation and public fixed income inflows, partially offset by public equity outflows.

U.S. Workplace Solutions’ adjusted operating income was $394 million, which increased 0.5% from the year-ago quarter owing to higher contribution from Retirement and was offset by lower contribution by Group Insurance business.

U.S. Individual Solutions reported adjusted operating income of $509 million, down 1.7% mainly due to lower contribution from Individual Annuities, partly offset by higher contribution from Individual Life.

International delivered adjusted operating income of $775 million, up 7.5% from the year-earlier period, owing to lower expenses, business growth and more favorable underwriting results, partially offset by lower earnings from joint venture investments and lower net investment spread results.

Corporate and Other incurred adjusted operating loss of $455 million, wider than loss of $281 million reported a year ago. The deterioration reflects increased expenses, lower net investment income, higher interest expense on debt and lower income from pension and other employee benefit plans.

Financial Update

Cash and cash equivalents of $18.3 billion at quarter end increased 12% from 2019 end level. Debt balance totaled $12.6 billion as of Sep 30, 2020, up 13.4% from the level as of 2019 end.

As of Sep 30, 2020, Prudential Financial’s assets under management increased 8.5% year over year to $1.6 trillion. Adjusted book value per common share, a measure of the company’s net worth, came in at $94.36 as of Sep 30, 2020, down 5.3% year over year. Operating return on average equity was 13.9% in the third quarter, up 110 basis points year over year.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month.

VGM Scores

At this time, Prudential has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Prudential has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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