Up 13% YTD, What To Expect From Prudential Financial Stock?

Prudential Financial’s stock (NYSE: PRU) has gained roughly 13% YTD as compared to the 9% rise in the S&P500 index over the same period. Further, at its current price of $117 per share, it is trading 8% above its fair value of $108 – Trefis’ estimate for Prudential Financial’s valuation. 

Amid the current financial backdrop, PRU stock has seen extremely strong gains of 45% from levels of $80 in early January 2021 to around $115 now, vs. an increase of about 40% for the S&P 500 over this roughly 3-year period. However, the increase in PRU stock has been far from consistent. Returns for the stock were 39% in 2021, -8% in 2022, and 4% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – indicating that PRU underperformed the S&P in 2023. In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Financials sector including JPM, V, and MA, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could PRU face a similar situation as it did in 2023 and underperform the S&P over the next 12 months – or will it see a strong jump?

The insurance giant missed the street estimates in the fourth quarter of 2023. It reported total revenues (U.S. GAAP) of $15.1 billion – up 12% y-o-y, primarily due to a significant decrease in net realized investment losses (from $1.4 billion to $492 million). Further, the premiums increased 7% y-o-y, followed by a 9% rise in the net investment income and a 13% gain in the asset management fees. Notably, the premiums contribute close to 50% of the top line, which mainly benefited from growth in the institutional retirement strategies (previously retirement solutions) category. On the expense front, total benefits and expenses (U.S. GAAP) marginally decreased in the quarter. Overall, it led to an adjusted net income of $1.3 billion, as compared to a loss of -$52 million in the year-ago period.

The company’s top-line declined 5% y-o-y to $53.98 billion in FY 2023. It was primarily due to lower premiums figure, partially offset by higher asset management fees, commissions & other income, and net investment income. Further, net realized losses also decreased from $4.5 billion to $3.6 billion in the year. On the cost front, total benefits and expenses witnessed a favorable drop, leading to an adjusted net income of $2.5 billion vs -$1.65 billion.

Moving forward, we expect the Q1 results to follow the same trend. Overall, Prudential Financial revenues are forecast to remain around $53.5 billion in FY2024. Additionally, PRU’s annual GAAP EPS is likely to remain around $9.06 in the year. This coupled with a P/E multiple of 12x will lead to a valuation of $108.

[1] Returns as of 4/4/2024
[2] Cumulative total returns since the end of 2016

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