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Prudential: Burning Questions Are Mostly Answered

Nick Perez profile picture
Nick Perez


  • Underwhelming financial performance led to the stock cratering 8%.
  • The liquidity position and balance sheet remain solid.
  • The company announced that share repurchases are to be paused for the foreseeable future.

My previous article on Prudential Financial (NYSE:PRU) reviewed questions investors had about the 1Q20 quarter which can be viewed here. The company read my mind and answered the majority of my questions with an overwhelming amount of detail. In this article, I review my questions and answers.

Prudential announced earnings on 5/5/20 and the conference call was on 5/6/20. The financial performance was underwhelming and the stock was hammered with the stock price declining 8%.

Financial Position

Prudential continued to be reactive and shored up its balance sheet and improved liquidity. The company raised $1.5Bn of debt to enhance liquidity. Charles Lowrey, CEO states:

We successfully issued $1.5 billion of senior debt in early March while spreads were still attractive. This included a $500 million green bond issuance, the first of its kind for a US company in our sector. These actions pre-funded our opportunities through the end of 2021 and enhanced the liquidity of our businesses. As part of the playbook, we further enhanced the liquidity of our businesses and also paused share repurchases at the end of the first quarter to see how the economic environment develops.

Two items to highlight: 1. The company took steps to solidify liquidity by issuing debt and conserving cash. 2. Conserving cash partially consists of pausing shareholder repurchases. While that is a sound strategy, some investors may shy away from the stock since repurchases have been paused.

The capital position is outlined in the 1Q20 Earnings Presentation.

Liquidity Position

Yes, the company has solid liquidity and access to capital. The impact from COVID-19 is estimated >$400MM and it appears Prudential has adequate liquidity to weather the storm as the pandemic begins to ease.

Kenneth Tanji, CFO stated:

Our financial leverage ratio is at our target, and our regulatory capital levels

This article was written by

Nick Perez profile picture
I am a long only stock investor. I look for companies that are under appreciated and have a catalyst to realize a more premium valuation. I take a bottom-up up approach by analyzing the financial statements. I can be found on Twitter @NPerezResearch

Analyst’s 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.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (26)

craftbrewinfo profile picture
So how does PRU stand in comparison to CINF in exposure to COVID-19 related business claim cases and litigation?
wantitall profile picture
Excellent article, thank you. I bought a 1/3 position on the dip, continuing to monitor for an opportunity to average in to a full position.
Linda Ankle profile picture
I can't decide: PRU vs. UNM.
tjhoppe profile picture
@Linda Ankle - Then split 50/50
Scooter-Pop profile picture
Well presented article.

Recently took a position in PRU due to low p/e, high dividend & conservative management.
About fixed annuities: About 6 years ago bought several, including 2 from Prudential, as a major source of retirement income; the internal rate of return was then about 6% compounded annually.

Contrary to many pundits, I believe they are a great source of predictable earnings. I'm reasonably sophisticated about investing... have even given presentations, and wouldn't trade them for a shot at better returns. Did that prior to the 2008 crash and got burned. As long as the issuer has a solid credit rating... Moody's rates PRU A3, I feel secure.
Just one man's opinion.

Nick Perez profile picture
Thank you for your comment.
PSUPete profile picture
If PRU pays you 6% and can only earn 2% in today's market, how long can that last?
ijeff profile picture
Today's market pertaining to interest rates isn't much different than it was over most of the past 12 years. That $4.40 annual dividend they pay is safely covered by earnings and cash flow.
They didn't declare the next dividend on the earnings call? Ex date is 5/18
Pinguino Investments profile picture
The dividend hasn't yet been declared, so we don't know the ex date yet.
Orangejulius profile picture
I unfortunately have a cost basis in the 80's but won't be selling as PRU is simply too cheap to ignore here. I'd be adding if I didn't already have a full position.

It looks like the dividend is safe which is my primary reason for the holding. I'll continue to stay the course and will slowly add more as my portfolio allows. I try my best to avoid holding more than a 5% position in any security, barring index funds.
Im in a similar position and agree with 5% rule. Its hard to find stronger fundementals at this kind of value though and will bend to get in at these levels.
ijeff profile picture
I too have a full position but sometimes circumstances merit going beyond.
Dividend Ambassador profile picture
If PRU can steer through this sudden depression and resume its normal business this is the chance of a lifetime. Selling for 1/2 book value. But there is the IF...
Excellent article on Prudential. Thank you for your insight and due diligence. I'm in the stock at $49 a share. I intend to hold it for many years.
Nick Perez profile picture
The 49ish level is near the great recession level
Thank you for the detailed article. Very nice summation of present circumstances.
Nick Perez profile picture
Thank you.
Just hold the dividend steady-please!
Pinguino Investments profile picture
That would be a very positive sign. It should be declared this week.
There's usually a pickup in annuity business after heavy market volatility. I'm starting to see more commercials from local financial groups touting guaranteed income.
The question that never gets asked is "Guaranteed? By whom?".
The answer is not what most people think...by the Company! Nobody else.
Thank you for the illuminating report, Mr. Perez.

Long PRU and hanging on for dear life.

Retired dividend-growth investor
whiff profile picture
Very informative post - thanks. Long PRU
Nick Perez profile picture
thank you! Good luck!
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