Estimates for Prudential Financial, Inc. (NYSE:PRU) have been revised upward over the past 60 days, buoying analysts’ optimism on the stock. The stock has seen the Zacks Consensus Estimate for 2018 and 2019 earnings being raised 0.7% and 0.3% to $4.52 and $5, respectively.
As a provider of life insurance, annuities, retirement-related services, mutual funds and investment management products and services, Prudential (LON:PRU) boasts a rich history of 140 years of operations. Shares of this Zacks Rank #2 (Buy) financial services leader have soared nearly 46.4%, outperforming the industry's surge of 38.6% over the last couple of years.
Let’s focus on the factors that make Prudential a wealthy choice for fetching fat returns to investors’ portfolio.
Pension risk transfer business poised for growth: Prudential’s Retirement segment is set to benefit from the company’s penetration and leadership in the pension risk transfer business. Appetite for risk of pension plan sponsors have off late increased, given a low interest rate, greater accounting and regulatory changes and larger-than-expected funding contributions. There has been a worldwide escalation in pension de-risking demand with the United Kingdom emerging as the leading market.
Rising demand for retirement benefits’ products: As baby boomers approach the age of retirement, Prudential should witness huge demand for products that benefit the silver years. About one-fourth of the population will turn 65 or older by 2050. Also, Asian markets including Korea and Taiwan, each of which also has a grey populace is showing keen interest in retirement-oriented products. The company should enjoy a competitive edge on the back of Prudential’s vast distribution network, a superior brand image and time-tested presence.
Growing international business: Prudential is expanding its global foothold, mainly in Japan, Korea and China, vital for long-term growth. The company’s Brazilian business has gained a sufficient scale and should become an important contributor to its earnings growth in the overseas division over the next few years. Further, business growth in Malaysia, an attractive market with low life insurance penetration, a well-developed regulatory environment and a long-term growth potential, must boost the company’s foreign operational activities.
Effective Capital Deployment: Banking on robust, sustainable cash generation, Prudential envisions a free cash flow ratio of about 65% of adjusted operating income on average over time. The insurer’s annualized dividend has nearly doubled over the last five years and currently yields 3.65%, better than the industry average of 2.49%. It also has $1.5 billion under share buyback authorization for 2018. All these collectively make Prudential a lucrative pick for yield-seeking investors.
Growth Projections: The Zacks Consensus Estimate for current-year earnings per share is pegged at $12.15, representing a year-over-year increase of 14.8% while for 2019, the consensus mark stands at $12.82, translating into a 5.6% year-over-year rise.
Prudential has expected long-term earnings per share growth of 8.5%.
Positive Earnings Surprise History: The company shows a decent earnings surprise history, exceeding the Zacks Consensus Estimate in the last three quarters with an average beat of 5.85%.
Attractive Valuation: Shares are trading at a price to book multiple of 0.8, lower than the industry average of 1.31. Price to book is the best multiple to value insurers because of large variations in their earnings results from one quarter to the next. The stock carries an impressive Value Score of A. Value Score helps finding stocks that are undervalued. This deviation from their fair value is what creates an exceptional upside opportunity. Back tested results show that stocks with a favorable Value Score Score of A or B coupled with a bullish Zacks Rank offer the best investment bets.
Other Stocks to Consider
Investors interested in the insurance industry may also consider other top-ranked stocks like Kemper Corporation (NYSE:KMPR) , Assurant, Inc. (NYSE:AIZ) and Cigna Corporation (NYSE:CI) .
Kemper provides property and casualty as well as life and health insurance to individuals and businesses in the United States. It pulled off an average four-quarter positive surprise of 121.61%. The stock sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Assurant provides risk management solutions for housing and lifestyle markets in North America, Latin America, Europe and the Asia Pacific. The company came up with positive surprises in the last four quarters, the average beat being 11.81%. The stock carries a Zacks Rank of 2.
Cigna provides insurance and related products and services in the United States and internationally. The company delivered an average four-quarter positive earnings surprise of 15.74%. The stock is a Zacks #2 Ranked player.
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