Prudential Financial Poised For Growth Despite High Expenses

On Aug 16, 2016, we issued an updated report on Prudential Financial, Inc. (NYSE:PRU) .

Prudential Financial’s second-quarter 2016 operating income missed the Zacks Consensus Estimate and also plunged year over year. Lower revenue generation due to decrease in premiums, decline in policy charges and fee income, and less asset management fees, commissions and other income resulted in the underperformance.

However, Prudential Financial has expanded its international presence, mainly in Japan, Korea and China, which provided it with better organic growth opportunities than peers. The company’s business in Brazil has also gained sufficient scale and should become an important contributor to earnings growth in the international division over the next few years.

Prudential Financial’s inorganic portfolio remains impressive. Several acquisitions like Uni. Asia Life Assurance Berhad, Indian asset management business of Deutsche Bank AG (DE:DBKGn) and indirect ownership interest in a leading Chilean retirement administrator has been enhancing the company’s inorganic portfolio.

Prudential Financial’s robust capital and liquidity position enables it to engage in shareholder friendly moves. The company paid about $1.4 billion to its shareholders in the first half of 2016 and has remaining $2 billion under its buyback authorization for the year.

However, total expenditure has been escalating for the company over the years, which might hamper near-term profitability.

Moreover, low interest rate environment may hamper the investment results. Also, underperforming group disability business and regulatory control may hurt the bottom line.

The Zacks Consensus Estimate moved south as most of the estimates were revised lower over the last 30 days. The same decreased 4.7% to $8.99 per share for 2016 and 0.2% to $10.30 for 2017.

Nevertheless, riding on the strength of its high performing asset management business, widespread international operations and deeper reach in the pension risk transfer market, Prudential (LON:PRU) targets 13–14% long-term return on equity. The expected long-term earnings growth is currently pegged at 9%.

Zacks Rank and Stocks to Consider

Currently, Prudential Financial carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the multiline insurance services are Allianz (DE:ALVG) SE (OTC:AZSEY) , James River Group Holdings, Ltd. (NASDAQ:JRVR) and Swiss Re Ltd. (OTC:SSREY) . Each of these stocks hold a Zacks Rank #2 (Buy).

ALLIANZ AG-ADR (AZSEY): Free Stock Analysis Report

JAMES RIVER GRP (JRVR): Free Stock Analysis Report

PRUDENTIAL FINL (PRU): Free Stock Analysis Report

SWISS RE LTD (SSREY): Free Stock Analysis Report

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