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Prudential Financial Could Post Higher Earnings in 4Q15

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Jan. 14 2016, Updated 8:55 a.m. ET

Strong earnings

Prudential Financial (PRU) stock fell by 6.6% over the past three months and by 15% over the past one year. The company has seen revenue contraction and lower profitability due to a strong dollar and lower investment income. The company is expected to report EPS (earnings per share) of $2.3 in 4Q15 as compared to a loss per share of $3.1 in the prior year quarter and EPS of $3.16 in 3Q15. In 2016, Prudential is expected to generate EPS of $10.2 backed by growth in retirement offerings.

The stock is currently trading at a price-to-earnings multiple of 9.9x as compared to the 12x–14x ratios of other major insurance players.

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In 3Q15, the company’s revenues fell by 6% year-over-year to $11.1 billion. It reported net income of $1.5 billion or $3.16 per share, up by 2x as compared to the third quarter of the previous year. On a constant dollar basis, the company saw growth of 12% in its international insurance business. The hike in interest rates would lead to higher investment income for the company. However, it might also partially offset gains from its international business on account of a strong dollar.

Insurance and asset management

Prudential Financial has ~$1.2 trillion of assets under management as of September 30, 2015. It has operations in the United States, Europe, Asia, and Latin America. The company’s product offerings include retirement-related services, mutual funds, life insurance, investment management, and annuities. Prudential Financial offers these products and services to institutional and individual customers through proprietary and third-party distribution networks.

The Americas remain the major contributor toward the company’s top line. In the United States, Prudential Financial’s competitors include ACE (ACE), Chubb (CB), and Allstate (ALL). Together, these companies form 0.63% of the iShares MSCI ACWI ETF (ACWI).

Prudential Financial’s investment portfolio consists of public and private fixed maturity securities, equity securities, commercial mortgages and other loans, as well as other invested assets.

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