Company Profile (excerpt from Reuters): Prudential Financial, Inc., incorporated in 1999, is a financial services company. The Company, through its subsidiaries and affiliates, offers a range of financial products and services, which includes life insurance, annuities, retirement-related services, mutual funds and investment management. The Company’s operations consists of four divisions, which together encompass seven segments. Its divisions include The U.S. Retirement Solutions and Investment Management division; the U.S. Individual Life and Group Insurance division; the International Insurance division, and Closed Block division. The Company has operations in the United States, Asia, Europe and Latin America.
Downloadable PDF version of this valuation:
Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?
|Defensive Investor; must pass all 6 of the following tests.|
|1. Adequate Size of the Enterprise||Market Cap > $2Bil||$39,227,191,497||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||191.48%||Pass|
|5. Moderate PEmg Ratio||PEmg < 20||7.86||Pass|
|6. Moderate Price to Assets||PB Ratio < 2.5 OR PB*PEmg < 50||0.82||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||Pass|
|2. Dividend Record||Currently Pays Dividend||Pass|
|3. Earnings Growth||EPSmg greater than 5 years ago||Pass|
Stage 2: Determination of Intrinsic Value
|MG Growth Estimate||15.00%|
|MG Value based on 3% Growth||$176.87|
|MG Value based on 0% Growth||$103.68|
|Market Implied Growth Rate||-0.32%|
|% of Intrinsic Value||20.42%|
Prudential Financial Inc is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability over the last ten years. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.
As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $5.22 in 2015 to an estimated $12.2 for 2019. This level of demonstrated earnings growth outpaces the market’s implied estimate of 0.32% annual earnings loss 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 above the price.
At the time of valuation, further research into Prudential Financial Inc revealed the company was trading below its Graham Number of $177.98. The company pays a dividend of $3.6 per share, for a yield of 3.8%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 7.86, which was below the industry average of 19.43, which by some methods of valuation makes it one of the most undervalued stocks in its industry.
Prudential Financial Inc fares extremely well in the ModernGraham grading system, scoring an A-.
Stage 3: Information for Further Research
|Number of Consecutive Years of Dividend Growth||10|
|ModernGraham tagged articles||Morningstar|
|Google Finance||MSN Money|
|Yahoo Finance||Seeking Alpha|
Most Recent Balance Sheet Figures
|Balance Sheet Information||12/1/2018|
|Long-Term Debt & Capital Lease Obligation||$18,333,000,000|
|Shares Outstanding (Diluted Average)||421,400,000|
Earnings Per Share History
|Next Fiscal Year Estimate||$11.96|
Earnings Per Share – ModernGraham History
|Next Fiscal Year Estimate||$12.20|
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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.