Prudential Financial Shows Financial Strength, Prioritizes Shareholders

| About: Prudential Financial, (PRU)
This article is now exclusive for PRO subscribers.

Summary

Unparalleled success and growth in pre-tax operating income in their US Retirement Solutions and Investment Management division in the 2014 - 2015 fiscal year.

Aggressive share repurchase policy. Repurchased shares valued at $250 million in the last quarter.

The stock is currently trading at a PE of 7.3x. Contrasted with the 12x–14x ratios of competitors, there are hints that the stock could be undervalued.

Company name: Prudential Financial, Inc.

Ticker: PRU

Price: $71.84

Market Cap: $31.44B

Recommendation: Buy

Prudential Financial (NYSE: PRU) is a Fortune 500 company that manages over $1 trillion of assets, including retirement, group insurance, international insurance, individual annuities, and more. Operating in over 30 countries across the world, Prudential has established itself as one of the most globally prominent financial services providers.

The business is comprised of three primary divisions: U.S. Retirement Solutions and Investment Management, U.S. Individual Life and Group Insurance, and International Insurance. While these are the financial cornerstones of Prudential, it operates in several other minor fields as well.

Business, Dividends, and Repurchasing

Prudential Financial's business model and financial health both suggest that it could potentially be a lucrative stock purchase for value investors in the insurance realm.

The company provides (and has provided for a long time) solid dividend payments for its shareholders. PRU has made an effort to consistently increase dividend payouts over time, currently offering a $.70 quarterly dividend. (A previous error in this article was corrected; in early 2013, the dividend was not drastically reduced, but was made on a quarterly basis as opposed to annually.)

Looking at this situation from a historical perspective, it is likely that Prudential will continue to increase its dividend payouts in the coming years, making it a positive prospect for interested long-term value investors. Given the firm's large market cap ($31.44B) and history of relative stability in the market, there is reason to believe that this dividend trend will hold, barring economic downturn or an unforeseen financial debacle.

Another reason that Prudential is likely a solid long-term value investment is the company's positive stance on share repurchasing. In general, repurchasing is a very positive move that benefits all shareholders by diluting the pool of available shares and by buying back stock for relatively high prices. From June 2014 to July 2015, a $1 billion share buyback program was approved, and the company has shown no aversion to the policy since then. In fact, in the last quarter, there were $250 million of share repurchases, part of a $1.5 billion share buyback program that was initiated in early 2016 and that will continue until the end of 2016. The fact that they have initiated another large share repurchasing program means that the company's officers are putting shareholder interests first, which is usually indicative of a solid potential investment.

The company's focus on retirement will also serve it well as the baby boomers come of age. Even if Prudential is unable to take a larger portion of the market share than they already have, they will grow just as a result of a larger industry of retirement services.

Competitors

PRU P/E = 5.78

MetLife, Inc. (NYSE:MET) P/E = 9.42

American International Group, Inc. (NYSE:AIG) P/E = 36.28

Lincoln National Corporation (NYSE:LNC) P/E = 8.29

Prudential has a relatively low price-to-earnings ratio when compared to similarly sized competitors such as Metlife. This, in combination with other financial factors, would suggest that the stock is underpriced and would be a solid buy on the position of value investing.

Prudential has seen strong increases in gross profit and operating income from 2013 to 2015, powerful signs of financial health that indicate future success.

Net income has seen a similarly positive jump, with PRU also experiencing an 18.74% increase in total stockholder equity over the same time period (2013 to 2015).

Conclusion

Strong financials and an opportune timing of the market, with the rise of baby boomers who will increase the nation-wide use of retirement investing tools, in combination with positive dividend and repurchasing policies, make Prudential a fantastic long-term value buy.

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

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.