Q. Can I count on my shares of Prudential Financial Inc. to continue going up in price?
C.M., via the Internet
A. The second-largest U.S. life insurer, behind only MetLife, has a strong brand identity.
Backing that up is $2 trillion worth of policies in force and $5 billion in cash. First-quarter earnings increased more than 50 percent from a year earlier, thanks to fees generated from assets under management.
The firm recently decided to eliminate its stock research department, while retaining profitable investment operations such as asset management and retirement planning. More than 400 jobs will be cut, including about 30 stock analysts. It closed its technical research group two years ago.
Shares of Prudential Financial (PRU) are up 18 percent this year, following gains of 17 percent last year, 33 percent in 2005, 32 percent in 2004 and 32 percent in 2003. It intends to buy back $3 billion worth of its shares this year.
Standard & Poor’s, citing Prudential Financial’s strong operating performance, risk management and competitive position, has raised the insurer’s counterparty credit rating to A+ from A. That reflects how well a company can meet financial obligations to customers, trading partners and other parties.
“The group maintains solid U.S. market-share positions in individual annuities, group benefits and the defined-contribution and asset-management segments,” S&P said in a statement.
The consensus rating on shares of Prudential Financial is currently a “buy,” according to Thomson Financial. That consists of six “strong buys,” five “buys,” six “holds” and one “sell.”
Already selling insurance in more than 30 countries and with especially strong positions in Japan and South Korea, Prudential Financial continues to grow internationally. It recently became the largest individual shareholder in a new venture to acquire the leading insurer in Saudi Arabia, a market with significant potential. It is awaiting Chinese government approval to invest in China’s local-currency stocks so it can set up a fund aimed at Asia’s retail investors.
Earnings are expected to increase 17 percent this year, versus the 10 percent predicted for the life insurance industry, according to Thomson. Next year’s projected 12 percent is in line with its peers. The firm’s five-year annualized growth rate is estimated to be 14 percent compared to 12 percent industrywide.
In light of Wachovia Corp.’s $6.8 billion deal to acquire retail broker A.G. Edwards Inc., Prudential Financial must re-examine its brokerage joint-venture arrangement with Wachovia to determine whether it wants to retain its ownership share, have a reduced share, or sell altogether.
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Andrew Leckey is a Tribune Media Services columnist. E-mail him at yourmoney@ tribune.com.
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