Prudential Financial’s stock (NYSE: PRU) has done well over the last year, rising by about 19% since early 2024. In comparison, its peer AIG stock is up by about 9% over the same period. So what are some of the trends that have driven Prudential stock higher over the past year and what’s the outlook like for the company?
The insurance giant posted better-than-expected results for Q3 2024. Adjusted operating income after taxes stood at $1.26 billion, or about $3.48 per share for the quarter, compared to $3.62 per share in the year-ago period. The company has been benefiting from relatively strong momentum in its global investment, insurance, and retirement businesses. The investment management business saw adjusted operating income rise by about 14% year-over-year to $241 million, driven by higher asset management fees. Prudential’s assets under management have expanded to about $1.6 trillion, supported by stock market appreciation, lower interest rates, strong investment performance, and net inflows. The insurance business has shown strength in underwriting income in the U.S., while Prudential’s annuity offerings contributed to robust performance in its retirement businesses over the third quarter. The company says that it has five annuity products surpassing $1 billion in 2024 sales.
The increase in PRU stock over the last 4-year period has been far from consistent and has largely been as volatile as the S&P 500. Returns for the stock were 45% in 2021, -4% in 2022, 10% in 2023, and 19% in 2024. The Trefis High Quality Portfolio, with a collection of 30 stocks, is less volatile. And it has comfortably outperformed the S&P 500 over the last 4-year period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics.
Given the current uncertain macroeconomic environment around rate cuts and multiple wars, could PRU face a similar situation as it did in 2023 and 2024 and underperform the S&P over the next 12 months – or will it see a strong jump?
We have a $114 price estimate for Prudential which is roughly in line with the current market price. See our analysis of Prudential Financial’s valuation for a closer look at what’s driving our estimate for the company. There are a couple of trends that could support PRU stock in the near term. Prudential is seeing a shift to its business mix. It announced a $11 billion reinsurance transaction a few months ago, which saw the company transfer risks and liabilities associated with guaranteed universal life policies to a re-insurer. The company carried out a similar transaction for $12.5 billion in March 2024 as well. These moves help the company reduce its exposure to GUL policies by approximately 60%, freeing up capital for use in other products such as registered indexed-linked annuities, which are more capital light and market linked helping to reduce risk. Separately, the election of Donald Trump to the U.S. presidency could benefit financial and insurance companies such as Prudential, as potentially lower regulatory burden and tax reductions could improve profitability. The company has also been increasing its shareholder returns, repurchasing about $250 million of stock over the last quarter, while paying out $1.30 per share in dividends, a roughly 5% yield on adjusted book value.
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