Prudential (PRU) Down 19.3% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for Prudential (PRU). Shares have lost about 19.3% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Prudential due for a breakout? 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 Q4 Earnings Surpass Estimates, Fall Y/Y

Prudential Financial’s fourth-quarter 2019 operating net income of $2.33 per share beat the Zacks Consensus Estimate by 15.9% on the back of Prudential Global Investment Management (PGIM), U.S. Individual Solutions and U.S. Workplace Solutions segments. However, the bottom line declined 4.5% year over year.

Behind the Headlines

Total revenues of $17.4 billion were down 1.9% year over year due to lower asset management fees, commissions and other income. But the top line beat the Zacks Consensus Estimate by 18.5%.

Total benefits and expenses of $16.2 billion dipped 1.2% year over year in the quarter. This decrease in expenses was mainly attributable to lower insurance and annuity benefits.

Quarterly Segment Update

PGIM reported adjusted operating income of $288 million, up 18.5% year over year. This upside was owing to higher asset management fees, backed by an increase in average assets under management, and a rise in other related revenues, partly offset by elevated expenses.

PGIM assets under management were $1.3 trillion (a record high) at the end of the reported quarter, up 13% year over year.

U.S. Workplace Solutions’ adjusted operating income was $342 million, up 37.3% from the year-ago quarter on higher contribution from Retirement segment.

U.S. Individual Solutions reported adjusted operating income of $508 million, up 21.2% from the prior-year quarter, riding on growth in earnings from Individual Life and Individual Annuity business.

International Insurance delivered adjusted operating income of $797 million, up 8.3% from the year-earlier period, banking on stronger net investment spread results, business expansion and an unfavorable effect from changes in market conditions on estimates of profitability in the year-ago quarter.

Corporate and Other Operations incurred adjusted operating loss of $738 million, wider than $329 million loss a year ago. The loss deterioration reflects more expenses borne by the company pertaining to its Voluntary Separation Program.

Share Repurchase and Dividend Update

In the quarter under review, the company returned capital worth $906 million to its shareholders.

It also declared a quarterly dividend of $1.10 per share, payable Mar 12, 2020 to its shareholders of record as of Feb 18, 2020.

Financial Update

Cash and cash equivalents of $16.3 billion at the quarter end were up 6.3% year over year.

Debt balance totaled $20.6 billion as of Dec 31, 2019, up 3.8% from the level as of 2018 end.

As of Dec 31, 2019, Prudential Financial’s assets under management ascended 12.6% year over year to $1.5 trillion.

Adjusted book value per common share, a measure of the company’s net worth, came in at $101.04 as of Dec 31, 2019, up 5.2% year over year.

Operating return on average equity was 9.4% in the fourth quarter, contracting 90 basis points year over year.

Full Update

Operating net income for the year summed $11.69 per share, flat with the 2018-level. Revenues for the year totaled $58.1 billion, flat year over year.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month.

VGM Scores

Currently, Prudential has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. Following the exact same course, 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 A. 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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