Prudential Tops Estimates - Analyst Blog
August 04 2011 - 8:30AM
Zacks
Prudential Financial Inc.’s
(PRU) second quarter 2011
earnings of $1.71 per share have topped the Zacks Consensus
Estimate of $1.55 as well as the prior-year quarter’s earnings of
88 cents. Results were aided by solid performance in the company’s
U.S. annuities and asset management businesses as well as its
international insurance operations.
Prudential has reported revenues of $10.2 billion, up 32% year
over year primarily due to higher asset management fees,
commissions and other income, net investment income as well as
higher premiums. Premiums earned surged 45% year over year to
$5.5 billion, while net investment income scaled up 20.0% year over
year to $2.5 billion.
Assets under management hiked 28% year over year to $883
billion, led by increased net new flows and an overall improvement
in markets.
Adjusted book value, which measures the net worth of a company,
increased to $62.97 at June 30, 2011 from $59.48 at December 31,
2010.
The U.S. Retirement Solutions and Investment
Management division, which houses Individual
Annuities,Retirement, and Asset Management, recorded operating
income of $621 million, significantly ahead of $130 million in the
prior-year quarter. The hike was attributable to an operating
income in individual Annuities segment, which had posted an
operating loss last year. Asset Management unit clocked an 83%
increase in operating income on the back of improved results from
proprietary investing activities and more favorable outcome from
commercial mortgage activities. Also, a 26% hike in operating
income at the Retirement segment, helped by higher fees associated
with a growth in retirement account values, expanded the segment’s
profit.
The U.S. Individual Life and Group Insurance
division, which comprises Individual Life segment and
Group Insurance segment, registered operating income of $179
million, up 49% year over year. The increase was led by a 48% spike
in contribution from the Individual Life segment and a 53% surge in
contribution from Group Insurance segment.
The International Insurance and Investments
division’s operating income upped 27% year over year to $590
million owing to increased contributions from Life Planner
insurance operations as well as Gibraltar Life.
Prudential’s Closed Block Business posted $9
million of operating income as against the year-ago net income of
$404 million. This segment consists of life insurance and annuity
policies that were issued before the company went public in
December 2001 but are still in force.
During the quarter, A.M. Best Co. reaffirmed the financial and
issuer credit ratings (FSR and ICR) of “A+” and “aa-”,
respectively, on Prudential and its subsidiaries, with a stable
outlook.
Prudential is aggressively restructuring its business and
considering acquisitions as well as spin-offs accordingly. The
acquisition of Star Edison and the spin-off of its commodities
business form a part of the company’s strategy to realign its
business in order to generate high return on equity. The company
has one of the best collections of businesses in the U.S. life
insurance sector, with strong positions in high margin businesses
and a significant diversification.
Despite a drag on revenue for the past couple of years due to a
volatile economic environment, the company has consistently
increased its revenues over the past several quarters. A right mix
of business and strong fundamentals has helped it to garner market
share from weakened competitors. Prudential is poised to improve
its earnings faster than its peers in the upcoming years.
Prudential also has substantial financial flexibility, which
positions it to participate in the consolidation of the global life
insurance and retirement market. Considering the large amount of
cash available for transactions, we believe Prudential has the
capacity to execute an accretive acquisition for organic
growth.
Prudential, the fourth leading life insurer only after
American International Group Inc. (AIG),
MetLife Inc. (MET) and New York Life Insurance
Co., carries a Zacks Rank # 3, which translates into a ‘Hold’
recommendation over the short term (1-3 months). Also, considering
Prudential’s fundamentals, we rate the stock “Neutral” over the
long term.
AMER INTL GRP (AIG): Free Stock Analysis Report
METLIFE INC (MET): Free Stock Analysis Report
PRUDENTIAL FINL (PRU): Free Stock Analysis Report
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