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Prudential Financial, Inc. (NYSE:PRU) has exhibited exceptional durability in the face of challenging economic conditions. Despite ongoing macroeconomic pressures, Prudential has maintained impressive revenue and earnings growth over recent periods. Even while grappling with the strain of climbing interest rates, the firm has augmented its dividend payout, providing an appealing yield at the current share price. This piece offers a technical analysis of Prudential's stock price, aiming to forecast future movements and identify potential long-term investment opportunities for investors. While long-term trends appear to hold, short-term variances may cause Prudential's price to swing within expansive ranges.
Financial performance
Prudential Financial, a titan with over $1.4 trillion in assets under management, has demonstrated resilience amid challenging economic conditions. Amid the prevailing challenges in the financial sector due to macroeconomic pressures, Prudential has managed to pull in substantial revenue in 2022. The company's revenue soared, showing marked growth during the initial quarter of the year, which significantly outpaced the earnings from the previous quarter. The total revenue and net income for the last 10 years are depicted in the following chart. Consequently, these figures demonstrate that Prudential continues to chart a steady growth trajectory, overcoming adversities and leveraging opportunities in its stride.
Prudential's strategic initiatives to boost efficiency and agility are underway, which includes a company-wide restructuring process. This effort includes the recent sale of some of its business units and the acquisition of a small stake in a South African financial services firm, a move aimed at bolstering its emerging markets strategy. Amidst these changes, Prudential is working to reduce costs in response to its modest growth, a common objective for companies of its size and age.
The company's diverse business segments have seen varied performances. While the PGIM segment saw a 71.1% year-over-year decline in pre-tax adjusted operating income due to the sale of its interest in an Italian asset management joint venture, the international business segment reported an 8% decline in income. However, the U.S. business segment generated $943 million in pre-tax adjusted operating income, up 11.9% from the previous year, bolstered by favorable underwriting results and lower expenses. The varying outcomes across Prudential's diverse sectors, in conjunction with its targeted strategic initiatives, underline a proactive management team making calculated moves for the company's long-term prosperity. The substantial growth in the U.S. business segment, particularly, serves as an affirmation of Prudential's resilience and ability to pivot effectively amidst the complexities of today's economic landscape.
The Future Trajectory of Prudential through a Technical Lens
As evidenced by the monthly chart below, Prudential continues to demonstrate a firm upward trend within the confines of the blue trendlines, indicating a consistent bullish pattern over the long term. Over the past two decades, two significant drops have been recorded. The first substantial drop to a low of $6.43 occurred during the Great Recession, after which the price surged to $97.86. This plunge was primarily a consequence of the financial turmoil of the era, caused by the U.S. housing market's collapse and the consequent plummet in mortgage-backed securities values. Like other financial institutions, Prudential had significant investments in these assets, leading to substantial losses. Furthermore, the economic downturn resulted in a rise in unemployment and a decrease in consumer confidence, thereby reducing insurance purchases and retirement investments and impacting Prudential's revenues negatively.
The second dip, which brought the price down to $32.58, was during the COVID-19-induced recession, after which the stock rebounded to record-high levels. The global economic downturn and volatility triggered by the pandemic created an uncertain environment that negatively affected investor sentiment toward Prudential. Moreover, the global interest rate cuts in response to the pandemic, while intended to stimulate economies, hurt Prudential.
Prudential Monthly Chart (stockcharts.com)
Even with the COVID-19 setback, the stock price soared to an all-time high, hitting a strong resistance at $115.50. Currently, the market is undergoing a correction from this high and attempting to stabilize at the present level. The RSI is now around the mid-level of 50, and if it can close above this level this month, there's potential for the stock price to increase in the following months. The recent strong rebound from the $74.22 point seems to suggest that after some fluctuations, the price could rise further.
The weekly chart below presents a bullish outlook for Prudential, showcasing the formation of a bull flag, which signifies market strength. A bull flag pattern is typically generated in the stock market when there's a sharp, strong volume surge that forms the flagpole, followed by a consolidation period with lighter volume, creating the flag, indicating that the stock is gathering momentum for the next significant price move upwards. If the price can break past $107, it will likely continue its upward trajectory. The RSI already moving above the mid-level 50, further solidifying Prudential's bullish outlook.
Prudential Weekly Chart (stockcharts.com)
Moreover, the short-term view also reveals a strongly bullish scenario, as the price has already hit a double bottom at $74.22 and $76.04 with a neckline at $86. The market has broken past the neckline, and the price is on an upward trend. The double bottom is considered a bullish pattern as it signals a potential reversal of a downward trend, indicating that demand is outpacing supply and buyers are gaining control, which can lead to a significant upward price movement. If a downward correction starts, the $86 level will serve as a significant investment opportunity for buyers.
Prudential Daily Chart (stockcharts.com)
Market Risk
Despite demonstrating resilience, Prudential Financial is not immune to the prevailing economic conditions. Market volatility, an inherent risk in the financial sector, stands as a substantial challenge for Prudential. This volatility could potentially sway the company's revenues and profitability, as market fluctuations can directly influence these metrics. Further compounding the challenges facing Prudential are rising interest rates. The company has acknowledged that its business could experience continued pressure as a result of these trends. An environment of higher interest rates escalates the cost of debt and can adversely impact the value of the company's fixed-income investments.
On a strategic front, Prudential is in the throes of a restructuring process. This process involves divestitures of certain business units alongside acquiring stakes in new markets. While these initiatives hold the promise of long-term profitability and improved efficiency, they are not devoid of risk. The success of Prudential's strategic endeavors hinges on a myriad of factors, including prevailing market conditions, the seamless integration of new acquisitions, and the company's capacity to manage expanded operations effectively.
From a technical perspective, the stock price of Prudential is currently in the confines of an ascending broadening wedge, indicating a high level of volatility. If the price were to break below the $74 mark, the market could potentially witness a further downward trend towards the lower boundary of the ascending broadening wedge.
Final Thoughts
In conclusion, despite navigating an intricate macroeconomic landscape, Prudential Financial has shown outstanding resilience, delivering consistent revenue growth and strategic maneuvers that speak volumes of its operational prowess and foresight. The company's continued restructuring and strategic acquisitions underline a proactive approach toward future-proofing its operations. The varied performances across Prudential's diverse sectors, coupled with a robust U.S. business segment, showcase an organization capable of capitalizing on challenging market conditions. Moreover, the technical analysis of the stock, pointing to a sustained bullish trend, makes Prudential a compelling proposition for investors looking for robust long-term returns. Prudential Financial maintains a robust bullish outlook over the long term, with the formation of a double bottom in the short term offering an attractive entry point for buyers. Investors have the opportunity to initiate their investments at the current price and consider increasing their stakes if the market readjusts to the $87 mark. Yet, should the price dip below $74, it could signal additional declines in the stock.
