Sep 24, 2020
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Prudential Financial Stock Has A Limited Upside

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(Photo Illustration by Rafael Henrique/SOPA Images/LightRocket via Getty Images) LIGHTROCKET VIA GETTY IMAGES Prudential Financial stock (NYSE: PRU) lost almost 59% – dropping from $95 on the end of 2019 to around $39 in late March – then spiked 73% to around $68 now. But which means it s still 28% lower than where it started the year! There have been 2 clear reasons for this: The Covid-19 outbreak and economic slowdown meant that market expectations for 2020 and the near-term consumer demand fell

 

That’s more likely to impact the insurance premiums and net investment income that are the two main revenue sources for Prudential Financial. However the multi-billion-dollar Fed stimulus in late March helped arrest the negative market sentiment which is likewise evident from the stock recovery after that point. But we expect Prudential Financial s stock has already achieved its growth potential and has limited further upside Trefis estimates Prudential Financial s valuation to be around $71 per share – slightly above the current market price – in response to an upcoming trigger explained below and one risk factor

 

The trigger is a stronger trajectory for Prudential Financial s revenues over the second half the year. We expect the corporate to report $60. 4 billion in revenues for 2020 – around 7% below the figure for 2019. Our forecast stems from our belief that the economic scenario is more likely to show some improvement in Q3

 

The recently released consumer spending data within the U. S which shows a m-o-m growth of 8. 5% in May followed by 5. 6% m-o-m in June give further weight to our expectations. If the trend continues within the coming months that’s likely to enhance both the web premiums figure and income from investment of insurance premiums

 

The latter is quite critical for the profitability of an insurance company and has improved as a result of the recent improvement within the securities market. This in turn would receive advantages the revenue trajectory over the coming months. The web income for the year is predicted to drop to $3

 

6 billion – down 14% y-o-y reducing the EPS figure to $9. 14 for FY2020. After that Prudential Financial s revenues are expected to enhance to $62. 1 billion in FY2021 mainly driven by growth in U. S retirement solutions and international insurance segments. That’s more likely to enable the EPS figure to the touch $10

 

09 for FY2021 – up by 10% y-o-y. PROMOTED UNICEF USA BRANDVOICE | Paid Program
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Leveraging Opportunity Employment To Advance Racial Justice In Corporate America Finally how much should the market pay per dollar of Prudential Financial s earnings? Well to earn close to $10

 

09 per year from a bank you d have got to deposit around $1110 in a savings account today so about 110x the specified earnings. At Prudential Financial s current share price of roughly $68 we’re talking a few P/E multiple of around 7x which we expect is appropriate. That said insurance is a risky business right now

 

Growth looks less promising and near-term prospects are lower than rosy. What s behind that? Prudential Financial is a worldwide insurance company with around $768 billion in identifiable assets between its U. S and International insurance segments (as per FY 2019 data). The corporate drives around 22% of its total revenues from income generated by the investment of insurance premiums

 

Hence its business model is quite sensitive toward changes in investment yields. While the broader markets are on a growth trajectory (up 55%) since the March bottom to any extent further deterioration within the economic condition or an unanticipated jump within the Covid-19 case count can reverse the momentum and will negatively impact the PRU s top line

 

The same trend is visible across Prudential Financial s peer – American International Group. Its revenues are also expected to be reduced in FY2020 as a result of lower premiums and a drop in investment income. Further American International Group s stock is currently trading at a price of around $30 but looks slated for an EPS of around $3

 

53 in FY2021. What in case you re looking for a more balanced portfolio instead? Here s a top-quality portfolio to outperform the market with over 100% return since 2016 versus 55% for the S&P 500 Comprised of companies with strong revenue growth healthy profits various cash and occasional risk

 

It has outperformed the broader market year after year consistently. See all Trefis Price Estimates and Download Trefis Data here What s behind Trefis? See How It s Powering New Collaboration and What-Ifs For CFOs and Finance Teams | Product R&D and Marketing Teams

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