Prudential Financial Inc Valuation – February 2016 $PRU

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Companies Benjamin Graham Would Invest In Today – February 2016.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Prudential Financial Inc (PRU) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Prudential Financial, Inc. is a financial services company. The Company, through its subsidiaries and affiliates, provides a arrange of financial products and services, including life insurance, annuities, retirement-related services, mutual funds and investment management. The Company has organized its principal operations into the Financial Services Businesses and the Closed Block Business. The Financial Services Businesses consists of three divisions, containing six segments, and the Company’s corporate operations. The Financial Services Businesses operate through three operating divisions: U.S. Retirement Solutions and Investment Management, U.S. Individual Life and Group Insurance, and International Insurance. The Company’s investment portfolio consists of public and private fixed maturity securities, commercial mortgage and other loans, equity securities and other invested assets.


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Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.


Downloadable PDF version of this valuation:

ModernGraham Valuation of PRU – February 2016

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass all 6 of the following tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $26,234,479,032 Pass
2. Earnings Stability Positive EPS for 10 years prior Fail
3. Dividend Record Dividend Payments for 10 years prior Pass
4. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 23.75% Fail
5. Moderate PEmg Ratio PEmg < 20 10.78 Pass
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 0.62 Pass
Enterprising Investor; must pass all 3 of the following tests, or be suitable for the Defensive Investor.
1. Earnings Stability Positive EPS for 5 years prior Fail
2. Dividend Record Currently Pays Dividend Pass
3. Earnings Growth EPSmg greater than 5 years ago Fail

Stage 2: Determination of Intrinsic Value

PRU value Chart February 2016

EPSmg $5.38
MG Growth Estimate -0.18%
MG Value $43.76
Opinion Overvalued
MG Value based on 3% Growth $77.99
MG Value based on 0% Growth $45.72
Market Implied Growth Rate 1.14%
Current Price $58.00
% of Intrinsic Value 132.53%

Prudential Financial Inc. does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, and the insufficient earnings growth over the last ten years. The Enterprising Investor has concerns regarding the lack of earnings growth or stability over the last five years.  As a result, value investors following the ModernGraham approach should explore other opportunities or proceed with a speculative attitude.

As for a valuation, the company appears to be overvalued after seeing its EPSmg (normalized earnings) decline from $5.44 in 2011 to an estimated $5.38 for 2015. This level of demonstrated earnings growth does not support the market’s implied estimate of 1.14% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value below the price.

Stage 3: Information for Further Research

PRU Charts February 2016

Graham Number $164.80
PEmg 10.78
PB Ratio 0.62
Dividend Yield 4.00%
Number of Consecutive Years of Dividend Growth 7



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Most Recent Balance Sheet Figures

Balance Sheet Information Sep2015
Long-Term Debt $28,699,000,000
Total Assets $754,527,000,000
Intangible Assets $0
Total Liabilities $711,807,000,000
Shares Outstanding (Diluted Average) 459,700,000

Earnings Per Share History

Next Fiscal Year Estimate $12.70
Dec2014 $3.20
Dec2013 -$1.57
Dec2012 $1.05
Dec2011 $6.99
Dec2010 $5.32
Dec2009 $7.63
Dec2008 -$2.53
Dec2007 $7.61
Dec2006 $6.50
Dec2005 $6.34
Dec2004 $3.31
Dec2003 $1.98
Dec2002 $1.25
Dec2001 $0.07

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $5.38
Dec2014 $2.14
Dec2013 $2.37
Dec2012 $4.13
Dec2011 $5.44
Dec2010 $4.75
Dec2009 $4.68
Dec2008 $3.55
Dec2007 $6.11
Dec2006 $4.87
Dec2005 $3.56
Dec2004 $1.89
Dec2003 $1.01
Dec2002 $0.44
Dec2001 $0.02

Recommended Reading:

Other ModernGraham posts about the company

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The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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