Over the last six months, Prudential’s shares have sunk to $103.65, producing a disappointing 13.8% loss - a stark contrast to the S&P 500’s 4.1% gain. This was partly due to its softer quarterly results and may have investors wondering how to approach the situation.
Is now the time to buy Prudential, or should you be careful about including it in your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.
Why Do We Think Prudential Will Underperform?
Despite the more favorable entry price, we're swiping left on Prudential for now. Here are three reasons why you should be careful with PRU and a stock we'd rather own.
1. Declining Net Premiums Earned Reflects Weakness
While insurers generate revenue from multiple sources, investors view net premiums earned as the cornerstone - its direct link to core operations stands in sharp contrast to the unpredictability of investment returns and fees.
Prudential’s net premiums earned has declined by 4.6% annually over the last two years, much worse than the broader insurance industry. This shows that policy underwriting underperformed its other business lines.
2. Revenue Projections Show Stormy Skies Ahead
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect Prudential’s revenue to drop by 5%, a decrease from its 1.2% annualized declines for the past two years. This projection doesn't excite us and indicates its products and services will see some demand headwinds.
3. BVPS Has Plateaued, Reflecting Stagnating Assets
We consider book value per share (BVPS) a critical metric for insurance companies. BVPS represents the total net worth per share, providing insight into a company’s financial strength and ability to meet policyholder obligations.
Disappointingly for investors, Prudential’s BVPS was flat over the last two years.
Final Judgment
Prudential falls short of our quality standards. After the recent drawdown, the stock trades at 1.2× forward P/B (or $103.65 per share). This multiple tells us a lot of good news is priced in - we think other companies feature superior fundamentals at the moment. Let us point you toward the most dominant software business in the world.
Stocks We Would Buy Instead of Prudential
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