Here's Why You Should Buy Prudential Financial (PRU) Now
Prudential Financial Inc. PRU remains well-poised for growth, banking on demand for retirement benefits’ products, business growth in the pension risk transfer market and international expansion. The Zacks Rank #2 (Buy) insurer holds immense potential, courtesy of prospective growth drivers.
Growth Projections: The stock has seen the Zacks Consensus Estimate for current-year earnings per share being pegged at $10.38 and at $11.30 for 2018. The consensus mark for both 2017 and 2018 reflects a year-over-year increase of 13.7% and 8.9%, respectively.
The expected long-term earnings growth is pegged at 8.5%.
Northbound Estimates: The stock has seen the Zacks Consensus Estimate for current-year earnings being revised 2.6% upward and for 2018, moved 0.7% north over the last 30 days.
Price Outperformance: Shares of Prudential have gained 3.2% quarter to date, outperforming the industry’s rise of 2.3%.
Positive Earnings Surprise History: Prudential has surpassed the Zacks Consensus Estimate in three of the last four quarters with an average beat of 0.16%.
VGM Score: Prudential carries a 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.
Attractive Valuation: Looking at the company’s price-to-book ratio — the best multiple for valuing insurers because of large variations in their earnings results from one quarter to the next — shares are underpriced at the current level. The company has a trailing 12-month P/B ratio of 0.97, falling significantly below the industry average of 1.41. Undervalued shares with growth prospects are best investment bets. Prudential carries a Value Score of A.
It is evident from back-tested results that stocks with a Value Score of A or B when combined with a favorable Zacks Rank #1 (Strong Buy) or 2 offer the best upside potential.
Growth Drivers in Place
Prudential will witness a surge in demand for retirement benefits’ products from the baby boomers. Further, a vast distribution network, superior brand image and time-tested presence will provide the company with a competitive edge.
Prudential’s Retirement segment is set to benefit from the company’s penetration and leadership in the pension risk transfer business. Low interest rate, greater accounting and regulatory changes plus larger-than-expected funding contributions have increased the pension plan sponsors’ risk-taking appetite.
Also, variable annuities, which the company considers an important part of its Retirement business, is set to generate improved risk-adjusted returns, specifically with less competition and an improved risk profile.
Prudential’s strong international presence boosts its organic portfolio with more growth opportunities than its peers.
Despite a low interest rate environment, Prudential has been witnessing a rise in investment income over the last few quarters. The company anticipates the momentum to continue, given the gradual rise of interest rate (three interest rate hikes since December 2016 with expectation for more going forward).
A strong capital position aids the company to return value to shareholders through dividend hikes and buybacks. Since 2011, the capital returned to shareholders amounted to a whopping $14 billion. The board has approved a buyback of $1.25 billion worth shares in 2017. The insurer’s annualized dividend has nearly doubled over the last five years, growing at an annual rate of 13%, thus representing the company’s robust and more sustained cash generation.
Other Stocks to Consider
Investors interested in multiline insurers can also look at other top-ranked stocks like MGIC Investment Corporation MTG, MetLife, Inc. MET and Radian Group Inc. RDN.
MGIC Investment provides private mortgage insurance and ancillary services to lenders and government sponsored entities in the United States. The company delivered an average four-quarter positive surprise of 2.17%. The stock flaunts Zacks Rank #1.You can see the complete list of today’s Zacks #1 Rank stocks here.
MetLife provides life insurance, annuities, employee benefits, and asset management products in the United States, Japan, Latin America, Asia, Europe, and the Middle East. The company pulled off an average four-quarter positive surprise of 9.60%. The stock carries Zacks Rank #2.
Radian Group provides mortgage and real estate products and services in the United States. It operates through two segments, Mortgage Insurance and Services. The company delivered an average four-quarter positive surprise of 24.26%. The stock carries Zacks Rank of 2.
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