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Here's Why Hold Strategy is Apt for Prudential Financial (PRU)

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Prudential Financial, Inc.’s (PRU - Free Report) growing pension risk transfer (PRT) market, higher emerging markets earnings, expanding distribution, product offerings, improved spread income, strategic acquisitions and a solid financial position make it worth retaining in one’s portfolio.

Zacks Rank & Price Performance

Prudential Financial currently carries a Zacks Rank #3 (Hold). Over the past year, the stock has gained 31.4% compared with the industry’s growth of 16.4%.

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Return on Equity

In the first quarter of 2024, Prudential Financial’s operating return on average equity was 13%, which expanded 170 basis points year over year. This shows the company’s efficiency in managing shareholders’ funds.

Optimistic Growth Projections

The Zacks Consensus Estimate for Prudential Financial’s 2024 earnings per share indicates a year-over-year increase of 15.4%. The consensus estimate for revenues is pegged at $63.51 billion, implying a year-over-year improvement of 24.7%.

The consensus estimate for 2025 earnings per share indicates an increase of 8.2% from the corresponding 2024 estimate.

Estimate Revision

The Zacks Consensus Estimate for PRU’s 2024 earnings has moved 0.007% north in the past 60 days, reflecting analysts’ optimism on the stock.

Style Score

Prudential Financial has a VGM Score of A. The VGM Score helps identify stocks with the most attractive value, best growth and most promising momentum.

Business Tailwinds

PRU’s International businesses are expected to gain from increased spread income, including the benefit of elevated interest rates and more favorable variable investment income, and higher joint venture earnings due to the favorable performance in Chile.

The U.S. businesses should continue to gain from higher spread income due to business growth and more favorable underwriting results.

Prudential has been a leader in the PRT market, helping companies reduce risks related to pension liabilities, such as interest rate risk, earnings volatility and participant longevity. PRU recently announced that it has been selected for a PRT transaction from Verizon Communications Inc. This move bodes well for the insurer’s Retirement Strategies business, which is expected to grow over time.

The multi-line insurer continues to invest in partnerships that enable it to grow in emerging markets. PRU undertakes several strategic initiatives, which poise it well for long-term growth. It continues to invest in the long-term sustainable growth of the business through programmatic acquisitions and partnerships in emerging markets to build scale and complement businesses in support of long-term growth.

This Zacks Rank #3 (Hold) multi-line insurer boasts a sturdy balance sheet strength that includes cash and liquid assets of $4.2 billion within the liquidity target range of $3-$5 billion. The company continues to balance investments in the growth of businesses with returning capital to shareholders.

PRU has been increasing its dividend for the past 15 years. Its dividend yield of 4.3% compares favorably with the industry’s figure of 2.4%. In the first quarter of 2024, the board also authorized a 4% dividend increase, which represents the 16th consecutive annual dividend hike. The company’s capital deployment is supported by its sturdy balance sheet strength, which continues to support an AA financial strength rating. As of Mar 31, 2024, 2.3 million shares were repurchased under this authorization for $250 million.

Prudential Financial has an impressive Growth Score of B. This style score helps analyze the growth prospects of a company.

However, PRU’s net margin has been declining over the last couple of years. The company has been witnessing an increase in expenses due to higher policyholders’ benefits, interest credited to policyholders’ account balances, dividends to policyholders as well as higher general and administrative expenses. The insurer must strive to improve its revenues, or else margins will continue to erode.

Prudential Financial’s debt level and interest expense have increased significantly over the last few years. In fact, total debt to equity has deteriorated over the same time frame. The insurer must service its debt uninterruptedly, or else creditworthiness could be dented.

Stocks to Consider

Some better-ranked stocks from the multi-line insurance industry are Radian Group Inc. (RDN - Free Report) , Old Republic International Corporation (ORI - Free Report) and EverQuote, Inc. (EVER - Free Report) , each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Radian Group has a solid track record of beating earnings estimates in each of the trailing four quarters, the average being 22.79%. In the past year, shares of RDN have jumped 20.5%.

The Zacks Consensus Estimate for RDN’s 2024 and 2025 revenues implies year-over-year growth of 8.2% and 4.9%, respectively.

Old Republic International has a solid track record of beating earnings estimates in three of the last four quarters while missing in one, the average being 6.61%. In the past year, shares of ORI have climbed 20.3%.

The Zacks Consensus Estimate for ORI’s 2024 and 2025 earnings implies year-over-year growth of 3.8% and 4.4%, respectively.

EverQuote has a solid track record of beating earnings estimates in each of the trailing four quarters, the average being 65.16%. In the past year, shares of EVER have skyrocketed 173.1%.

The Zacks Consensus Estimate for EVER’s 2024 and 2025 earnings implies year-over-year growth of 98% and 550%, respectively.

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