After Mixed Results, This Insurance Company Is Underpriced

| About: Prudential Financial, (PRU)

By Renee O'Farrell

Prudential Financial (NYSE:PRU) fell short of analyst earnings estimates when it announced its first quarter performance late May 2. The insurance company's earnings shrunk 7.7% compared to the same quarter last year. Prudential reported earning $1.56 a share versus expectations of $1.67 a share. The company was, however, able to surpass analyst estimates as to its revenue. At $10.7 billion, it brought in revenues 16.3% higher than the same period last year, compared to estimates of $10.37 billion.

The market responded harshly to the news. Shares in Prudential plummeted from almost $61 a share when the markets closed on May 1, down to less than $54 a share - a difference of nearly 12%. The change in price pushes the stock, which has a one year target range of $64 to $86 a share, down to just over 6 times its forward earnings - and its not like Prudential doesn't have strong projected earnings growth. Analysts say the company will earn $6.94 a share this year, up from $6.41 a share last year. Consensus estimates put Prudential earning $8.14 a share in 2013 - an increase of 17.3%. Looking at the next five years, that rate is expected to calm somewhat to an average 11.90% a year over the next five years, but that is still more than 2 percentage points higher than the 9.71% average growth estimated for its industry and 1.5 percentage points higher than the market.

Moreover, look at the people recommending this stock. Of the 20 analysts that cover Prudential, 6 rated it as a strong buy and 11 recommended it as a buy - just 3 analysts recommended the company as a hold. Prudential also has a lot of hedge fund interest. Andreas Halvorsen's Viking Global initiated a new $197.09 million position in the company during the fourth quarter last year (check out Viking Global's top picks). Ric Dillon's Diamond Hill Capital and Ken Griffin's Citadel Investment Group are also fans of Prudential. Both funds upped their stakes in the company during the fourth quarter.

Plus, Prudential is positioned better than its competitors. At $34 a share, rival American International Group (NYSE:AIG) is priced almost twice as high as Prudential relative to its future earnings, with a forward price to earnings ratio of 11.29. AIG earned just $1.02 a share last year. Analysts are expecting that number to rise to $3.08 a share this year but fall to $3.03 a share in 2013. ING Groep (NYSE:ING) is trading at just under $7 a share. Analysts expect this company's earnings to come in at $1.35 this year, which the same amount the company earned last year, rising to $1.90 a share next year. Prudential competitor MetLife (NYSE:MET) is actually in a pretty good position. It recently traded at $35 a share. Analysts expect the company to earn $5.22 a share this year and $5.62 a share next year, meaning that its forward price to earnings ratio is only marginally higher than Prudential at 6.23.

Prudential represents low pricing combined with steady earnings increases - enough to make any investor swoon. I recommend buying in now before the price goes back up.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.