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Why Is Prudential (PRU) Down 12.2% Since Last Earnings Report?

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A month has gone by since the last earnings report for Prudential (PRU - Free Report) . Shares have lost about 12.2% in that time frame, underperforming the S&P 500.

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

Prudential Financial's Q3 Earnings Beat Mark, Rise Y/Y (Revised)

Prudential Financial, Inc.’s third-quarter 2021 operating net income of $3.78 per share beat the Zacks Consensus Estimate by 41%. Moreover, the bottom line increased 17.8% year over year owing to higher contributions from U.S. Businesses and International Businesses. The company’s results gained from a solid revenue stream.

Operational Update

Total revenues of $19.6 billion increased 52.8% year over year owing to higher premiums, net investment income, policy charges and fee income, asset management fees, commissions and other income. The top line beat the Zacks Consensus Estimate by 48.5%.

Total benefits and expenses of $17.8 billion increased 56.8% year over year in the quarter. This increase was mainly due to steep higher insurance and annuity benefits, interest credited to policyholders' account balances, and general and administrative expenses.

Quarterly Segment Update

Prudential Global Investment Management (PGIM) reported adjusted operating income of $327 million, which declined 11.6% year over year. Results reflect lower Other Related Revenues from a decline in seed and co-investment income and incentive fees along with escalating expenses.

PGIM assets under management improved 5% year over year to a record high of $1.514 trillion at the end of the reported quarter. The upside was driven by market appreciation, positive third-party net flows, private originations and a strong investment performance.

U.S. Businesses’ adjusted operating income was $1.090 billion, which increased 28.5% from the year-ago quarter’s level. The upside reflects higher net investment spread results, driven by increased variable investment income and a rise in net fee income, backed primarily by equity market appreciation. It was partially offset by less favorable underwriting results.

Assurance IQ incurred an adjusted operating loss of $55 million, wider than the loss of $30 million in the year-ago quarter. This reflects a 47% increase in revenues, which was more than offset by escalated expenses to support business growth.

International delivered an adjusted operating income of $887 million, up 14.5% from the year-earlier period’s figure. This increase was owing to business growth, better net investment spread results, lower expenses and improved earnings from joint-venture investments.

Corporate and Other incurred an adjusted operating loss of $460 million, narrower than the loss of $493 million reported a year ago. This result reflects higher income from pension and other employee benefit plans, lower interest expense and higher net investment income.

Capital Deployment

The company managed to return capital to its shareholders in the form of share repurchases worth $875 million and dividend worth $451 million in the third quarter.

Financial Update

Cash and cash equivalents of $15.6 billion at quarter end decreased 25% year over year. Total debt balance of $19.6 billion fell 5.1% from the 2020-end level.
As of Sep 30, 2021, Prudential’s assets under management increased 4.8% year over year to $1.7 trillion. Adjusted book value per common share, a measure of the company’s net worth, came in at $106.85 as of Sep 30, 2021, up 13.2% year over year. Operating return on average equity was 14.5% in the third quarter, expanding 120 basis points year over year.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -9.05% due to these changes.

VGM Scores

Currently, Prudential has a subpar Growth Score of D, however its Momentum Score is doing a lot better with an A. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top 20% 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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