The clear reversal on very high volume on March 20 was the warning sign for the current decline; also the parabolic long term chart. The market is now "risk off". Whether your "guess" comes true or not remains to be seen.
Robert, contrary to what "graderist" subsequently said, they can't charge more for most business - like the pension obligations they assumed or the premium rates on existing life insurance policies (although they could cut dividends on the latter). The stock has been underperforming the general market for quite a while - a lot this year - because long term rates went down instead of up and look like they will not rise meaningfully any time soon.
I also am skeptical that any increase by the Fed in short term rates of 1/4-1/2 percent would necessarily cause long term rates to rise. The latter is what defines their investment income and I do not see enough strength in the world economy to cause a material, sustained increase. The stock needs to rise over 9% to get back to even for this year. I own a modest position and think there is a shot at the high 80's, but look at it more as a hedge against an unexpected jump in longer term rates - rates jump and PRU outperforms.
As of today, we can now say that Auxilio can get a stunningly large $50 million 5-year contract. While implementation costs will likely mean no positive impact from the deal on short term earnings, this deal plus the $18M one from December may mean sales a year from now are 30% higher than in Q4 2014 (and earnings much higher). This deal also suggests to me that the company has reached the big time in its market and being in only 120 facilities out of a potential market of 6,700 is indeed just the start.
The stock was temporarily overpriced a year ago at $1.72 and underpriced late last year at 81 cents. That is characteristic of volatile, inefficiently priced, microcap stocks that have little following. The stock today returned to the middle of that range, where it belongs until it can show whether it can turn such large contracts into earnings. If is succeeds the stock should exceed $2.00 in 2016.
Now announced as March 31. However, the big news today was not that, but the $50M five year contract. Between that and the $18M one announced at the end of December, revenue may be rising by about 30% by the end of this year.
For a long time, a significant move up or down in 10-year Treasury rates has been accompanied by a corresponding move in the insurance stocks. That is logical, as higher rates increase the return on insurance company assets and enable them to better meet obligations - as in all the pension obligations Pru has taken on in recent years.
I doubt it will reach $90 without a material uptick in rates. Note this from Bill Gross:
“Pension funds and insurance companies are perhaps the most important examples of financial sectors that are threatened by low to negative interest rates. Both sectors have always attempted to immunize their long term liabilities (retirement, health, morbidity) by investing at a similar duration with an attractive yield. Now that negative and in almost all cases low short term rates are expected to persist, long term bonds and similar duration assets do not offer the ability to pay claims 5, 10, 30 years into the future.”
Yahoo article: http://finance.yahoo.com/news/longer-lives-hit-companies-pension-014900531.html
This change in mortality assumptions appears bad with respect to all those pension plans that Prudential took over (at too low a price?). That said, this is not a sudden occurrence and Pru should have plenty of its own data that has shown the same thing (that it used in analyzing these takeovers)..
Longer life spans also indicate that, if one is in good health and can afford to do so, delaying taking Social Security is a smart personal strategy since the increase in benefits you get has not been reduced for folks now living longer.
PRU was down 2% in 2014 while S&P was up 11%. So far this year it is down 12% while S&P is up 1%. A peer like LNC is within a point of its post recession high. This stock has been underperforming for a long time and it has now become apparent in results why. In my opinion, confidence will not quickly be restored, especially if it is a consequence of poor management and what looks like poor strategic decisions, like taking on so much pension business, underhedging interest rate risk and buying back stock at high prices. However, the valuation is far lower than the market and IF they can meet current analysts' earnings estimates going forward - recovery to the $10 per year range - the stock will eventually recover.
The price was up today because the 10-year Treasury went from 1.82% to 1.94% yield, the largest one-day move up in rates in a very long time. MET and LNC were also up.
I do not regard the fundamentals as "very nice". The company is hurt by low rates and they have dropped even more since year end. Think of the impact of low rates on the billions of pension commitments they have taken over. Low rates may not go away for years, because the world economy is weak (not because of the Fed). That said, the valuation is much lower than that of the general market. A good investment is one where the actual fundamentals - good, bad, or indifferent - are priced cheaply. Whether Pru's mediocre fundamentals are cheaply priced yet remains to be seen. I would be inclined to wait for Q1 to be reported. (I own a modest long term position.)
A Form 4 was filed by Director Leonard for a 500 share purchase at $1.00 on 1/27 under a 10b5-1 non-discretionary buying plan. Such a plan will buy stock at $1.00 under the plan according to the rules Leonard specified before the current quiet period began at the end of December. There is no way of knowing how much he is interested in buying since only that small amount has traded at $1.00 since yearend.