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Prudential (PRU) Stock Up 39% YTD: More Room for Upside?

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Prudential Financial (PRU - Free Report) shares have rallied 38.5% year to date compared with the industry's increase of 20.1% and the Finance sector’s increase of 20.9%. The Zacks S&P 500 composite has risen 13.3% in the said time frame. With market capitalization of $42.6 billion, average volume of shares traded in the last three months was 2.2 million.

Solid asset-based businesses, improved margins in Group Insurance business, and international operations continue to aid Prudential. The company has a solid track of beating earnings estimates in the last four reported quarters, with the average beat being 24.36%.

 

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Can it Retain the Momentum?

The Zacks Consensus Estimate for 2021 and 2022 earnings has moved up 11.5% and 1.3%, respectively in the past 60 days, reflecting analysts’ optimism.

High performing asset management business and deeper reach in the pension risk transfer market are catalysts for long-term growth. The expected long-term earnings growth rate is pegged at 10.6%.

Being one of the top five individual life insurance companies in the United States, Prudential is witnessing huge demand for retirement benefits’ products for baby boomers. Its leading position in universal, term and variable life insurance and expanding Retirement business should help it capitalize on the growth opportunities.

Focus on repricing as well as moving toward lower risk and less capital-intensive products bodes well for growth. As the company transforms to become a higher growth, less market-sensitive business, it expects to double its growth businesses to more than 30% of earnings and have the individual annuities business to 10% or less of earnings.

Prudential also remains upbeat about expanding its international footprint with focus on directing earnings mix to higher-growth markets. Its strong international presence offers more organic growth opportunities than its peers. The company is in the process of reallocating $5 billion to $10 billion of capital by pursuing strategic acquisitions to grow in asset management and in international emerging markets

Based on the progress of accelerating savings and creating new ways of working, this Zacks Rank #3 (Hold) insurer expects to deliver $750 million in cost savings by the end of 2023, $400 million of which were targeted for 2021.

Moreover, the company has been increasing its dividend for the past 12 years. Its dividend yield of 4.2% compares favorably with the industry’s figure of 1.9%, which makes the stock an attractive pick for yield-seeking investors. Prudential envisions about 65% free cash flow ratio of earnings and about two times its dividend. The company targets to return $10.5 billion to shareholders through 2023.

The stock carries an impressive VGM Score of B. Here V stands for Value, G for Growth and M for Momentum, with the score being a weighted combination of all three factors.

Stocks to Consider

Some better-ranked stocks from the same space are Horace Mann Educators Corporation (HMN - Free Report) , Old Republic International Corporation (ORI - Free Report) , and Cincinnati Financial Corporation (CINF - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Horace Mann delivered 44.74% earnings surprise in the last reported quarter.

Old Republic International delivered 53.33% earnings surprise in the last reported quarter.

Cincinnati Financial delivered 30.48% earnings surprise in the last reported quarter.

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