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Prudential (PRU) Up 17.7% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Prudential (PRU). Shares have added about 17.7% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Prudential due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Prudential Q1 Earnings and Revenues Miss Estimates

Prudential Financial first-quarter 2020 operating net income of $2.32 per share missed the Zacks Consensus Estimate by 18.3%. The bottom line declined 22.7% year over year on lower contributions from Prudential Global Investment Management (PGIM), U.S. Individual Solutions, U.S. Workplace Solutions as well as International Businesses.

Behind the Headlines

Total revenues of $13.3 billion were down 2% year over year due to lower asset premiums, policy charges and fee income and decrease in asset management fees, commissions and other income. The top line missed the Zacks Consensus Estimate by about 10%.

Total benefits and expenses of $12.1 billion were up 1% year over year in the quarter. This increase in expenses was mainly attributable to higher insurance and annuity benefits, deferral of acquisition costs and amortization of acquisition costs.

Quarterly Segment Update

PGIM reported adjusted operating income of $164 million, down nearly 23% year over year. The downside was attributable to lower Other Related revenues as a result of lower strategic investment earnings, and higher expenses, partially offset by higher asset management fees attributable to increase in average assets under management.

U.S. Workplace Solutions’ adjusted operating income was $289 million, down 4.9% from the year-ago quarter on lower contribution from Retirement as well as Group Insurance business.

U.S. Individual Solutions reported adjusted operating income of $353 million, down 38.8% attributable to lower contribution from Individual Annuities and Individual Life.

International delivered adjusted operating income of $751 million, down 18.5% from the year-earlier period, attributable to lower net investment spread results, higher expenses, lower earnings from joint venture investments due to market performance, and less favorable underwriting results. These items were partially offset by business growth.

Corporate and Other Operations incurred adjusted operating loss of $342 million, narrower than $412 million loss a year ago. The improvement reflects lower expenses and higher income from pension and other employee benefit plans, partially offset by lower net investment income.

Share Repurchase Update

Prudential returned capital worth $945 million to its shareholders in the first quarter of 2020.

Financial Update

Cash and cash equivalents of $31.6 billion at quarter end increased 93.8% from 2019 end level.

Debt balance totaled $22.7 billion as of Dec 31, 2019, up 10.1% from the level as of 2019 end.

As of Mar 31, 2020, Prudential Financial’s assets under management increased 2% year over year to $1.481 trillion, up year over year, driven by reflecting market appreciation and fixed income inflows, partially offset by equity outflows.

Adjusted book value per common share, a measure of the company’s net worth, came in at $99.71 as of Mar 31, 2020, up 3% year over year.

Operating return on average equity was 9.3% in the first quarter, contracting 330 basis points year over year.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -42.24% due to these changes.

VGM Scores

At this time, Prudential has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Prudential has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.


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