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Prudential On The Mend
Life insurance giant Prudential Financial (NYSE:PRU) reported a hefty jump in profits during its second quarter. Insurance and annuity sales also continued to recover nicely after a difficult stretch over the past couple of years. The stock is still stuck slightly below book value and could be a good entry point for investors.
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Second Quarter Revenue Review
Total company revenues grew 38.7% to $8.7 billion on strong premiums, fee income and net investment income trends. Management highlighted a 55.9% increase in individual annuity sales to $5.3 billion as consumers return to more regular retirement planning activities after the credit crisis. Assets under management also rose modestly to $690 billion. Prudential offers mutual fund and investment management activities in addition to its core life insurance and annuities businesses.
In December, 2001, Prudential went public and demutualized from a structure where policyholders owned the company. It also issued Class B shares in a private placement. As a result, the Class B owners lay claim to a division called the Closed Block business. Prudential detailed that the Closed Block business represented just over $2 billion of total company revenue and $134.5 million in total earnings. Common shareholders lay claim to the results in the Financial Services Businesses.
Profit Recap
Net income attributable to this business totaled $798 million for the second quarter, or $1.70 per common share. Including several management adjustments, management detailed that adjusted income was $708 million, or $1.51 per share, and better reflects the profitability of the recurring operations.
The Bottom Line
In similar fashion to rivals that include MetLife (NYSE:MET) and Manulife (NYSE:MFC), Prudential also benefited from a reversal of investment losses taken during the credit crisis. Consolidated investment gains reached $212 million for the quarter, following a loss of $868 million in last year's quarter. As a result, reported book value improved and reached nearly $60 per diluted share.
At a current share price of just above $59, Prudential continues to trade below book value. It's difficult to see the stock trading at close to two times book as it did back in 2007, but a slight premium to book could easily be warranted, given Prudential is a leading firm in the industry. It is also trading at about nine-times forward earnings expectations, which is well below its historical average.
In other words, Prudential is worth a closer look for investors looking for insurance industry exposure. As such, it's a play on domestic industry trends. China Life Insurance (NYSE:LFC) is a play on Asian growth, as is MetLife, which is set to buy a sizable global insurance segment from embattled insurer American International Group (NYSE:AIG). (Learn how much - if any - insurance you really need. Read How Much Life Insurance Should You Carry?)
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IN PICTURES: World's Greatest Investors
Second Quarter Revenue Review
Total company revenues grew 38.7% to $8.7 billion on strong premiums, fee income and net investment income trends. Management highlighted a 55.9% increase in individual annuity sales to $5.3 billion as consumers return to more regular retirement planning activities after the credit crisis. Assets under management also rose modestly to $690 billion. Prudential offers mutual fund and investment management activities in addition to its core life insurance and annuities businesses.
In December, 2001, Prudential went public and demutualized from a structure where policyholders owned the company. It also issued Class B shares in a private placement. As a result, the Class B owners lay claim to a division called the Closed Block business. Prudential detailed that the Closed Block business represented just over $2 billion of total company revenue and $134.5 million in total earnings. Common shareholders lay claim to the results in the Financial Services Businesses.
Net income attributable to this business totaled $798 million for the second quarter, or $1.70 per common share. Including several management adjustments, management detailed that adjusted income was $708 million, or $1.51 per share, and better reflects the profitability of the recurring operations.
The Bottom Line
In similar fashion to rivals that include MetLife (NYSE:MET) and Manulife (NYSE:MFC), Prudential also benefited from a reversal of investment losses taken during the credit crisis. Consolidated investment gains reached $212 million for the quarter, following a loss of $868 million in last year's quarter. As a result, reported book value improved and reached nearly $60 per diluted share.
At a current share price of just above $59, Prudential continues to trade below book value. It's difficult to see the stock trading at close to two times book as it did back in 2007, but a slight premium to book could easily be warranted, given Prudential is a leading firm in the industry. It is also trading at about nine-times forward earnings expectations, which is well below its historical average.
In other words, Prudential is worth a closer look for investors looking for insurance industry exposure. As such, it's a play on domestic industry trends. China Life Insurance (NYSE:LFC) is a play on Asian growth, as is MetLife, which is set to buy a sizable global insurance segment from embattled insurer American International Group (NYSE:AIG). (Learn how much - if any - insurance you really need. Read How Much Life Insurance Should You Carry?)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
by
Ryan C. Fuhrmann
Ryan C. Fuhrmann, CFA, has a background in portfolio management, overseeing assets for high-net-worth individuals and covering a broad array of industries from a generalist perspective. An active student of investing, he focuses on communicating his ideas as an investment writer and learning from the financial community. Ryan is also actively involved with the CFA Institute. Feel free to visit his website at www.rationalanalyst.com.
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