VALUATION HIGHLIGHTS
- International Insurance constitutes 40% of the Trefis price estimate for Prudential Financial's stock.
- U.S. Workspace Solutions (U.S. Retirement Solutions, U.S. Group Insurance) constitute 22% of the Trefis price estimate for Prudential Financial's stock.
- U.S. Individual Solutions (U.S. Life Insurance, U.S. Individual Annuities) constitute 21% of the Trefis price estimate for Prudential Financial's stock.
WHAT HAS CHANGED?
Latest Earning
For Q4 2024, Prudential Financial reported earnings that were below market expectations. Adjusted operating income came in at $2.96 per share, up about 16% compared to last year. Total revenues of $13 billion increased 1% year over year.
POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE
Below are key drivers of Prudential's value that present opportunities for upside or downside to the current Trefis price estimate for Prudential:
International Insurance
- Prudential's International Insurance Revenues: Prudential has established its brand in some of the large and growing insurance markets outside of the U.S. and is well-positioned to benefit from the growth in these economies.
- We expect the company to maintain a high single-digit growth rate through the decade. There is a near 3% downside, should currency fluctuations deter growth, keeping the growth rate at around 1%. However, there is a near 5% upside to our estimate if the company posts a high annual growth of over 5%.
BUSINESS SUMMARY
Prudential Financial, Inc. offers a wide array of financial products and services, including life insurance, annuities, retirement-related services, mutual funds, investment management, and real estate services to individual and institutional customers through proprietary and third-party distribution networks. It has operations in the United States, Asia, Europe, and Latin America.
SOURCES OF VALUE
Prudential's most valuable businesses are International Insurance and U.S. Workplace Solutions. The company offers individual life insurance, retirement, and related products to the mass affluent and affluent markets in Japan, Korea, and other countries outside the U.S. through its Life Planner operations.
Growth in International Insurance Revenues
Insurance penetration outside of the U.S. and Japan remains low and thus provides an opportunity for insurance companies. Global insurance premiums are likely to continue to grow over the long term. The recovery of financial markets will likely stimulate the growth of unit-linked products, thereby pushing up the sales of saving products and boosting the premiums of insurance companies. The long-term prospects for life insurance remain favorable, given the expected global impact that the aging population will have on the demand for life insurance products.
KEY TRENDS
Modest growth in the life and health insurance market in the U.S.
Growth in the life and health insurance business continues to be impacted by the current higher levels of unemployment, and people may further reduce or eliminate coverage in response to the financial pressures they are experiencing. As a result, we do not expect any significant near-term growth in the U.S. life and health insurance market.
Industry Consolidation to Improve Scale and Cost Effectiveness
In the retirement solutions market, Prudential competes with other large, well-established insurance companies, asset managers, and diversified financial institutions based on pricing, the variety of investment offerings, and investment performance. Since the variety of investment offerings cannot increase indefinitely, and investment performance tends to be similar across large insurance companies, industry consolidation will help companies increase scale, improve cost efficiencies, and enter new market segments.
