Prudential Financial, Inc. - NYSE:PRU - Comprehensive analysis
Prudential is a long-term savings and health insurance business primarily operating in Asia and Africa. The company is currently trading at approximately a 30% discount to our fair value estimate of GBP 12.2 per share. Although Prudential lacks a competitive moat, we assign it an Exemplary Capital Allocation Rating, reflecting its commitment to investing in customer experience, health insurance, and technology. The company has established a reputation for developing some of the best bespoke technology structures in the industry, which have enabled it to create a chassis and bolt-on rider product platform. This platform is supported by a well-trained distribution force that has historically helped the business outperform peers during periods of market uncertainty and dislocation.
The current depressed share price can be attributed to a combination of factors, including an overly ambitious bid for a peer, divestments of businesses before and during the pandemic, the resignation of the CEO, and a significant reduction in shareholder income. What remains is considered the strongest segment of the previously larger group; however, the new CEO has yet to deliver the income that investors are seeking.
Prudential aims to invest in its three pillars—health insurance, technology, and customer experience—to achieve new business profit growth of 15% to 20% compounded annually and to increase operating free surplus generation to over $4.4 billion. While Prudential has made progress in building new business profit, it has struggled with operating free surplus generation, which is essential for paying dividends. The initial years of the investment program have negatively impacted this generation, which is built over time through cohorts of new business profit.
Currently, Prudential trades at around 12 times our forecast for 2025 earnings, compared to historical levels of approximately 16 times, indicating a significant discount. We believe the firm can achieve its targets for new business profit and operating free surplus generation, which would support our forecasts and likely result in a doubling of the 2022 dividend. This outcome should enhance the yield and improve Prudential’s share price.
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