Prudential Financial Inc.PRU

Morningstar Rating

Stock Research and Analysis

by Drew Woodbury

Prudential Financial is one of the largest life insurers in the United States, with leading share in many key markets. However, this scale does not generate excess returns and, in our opinion, Prudential lacks an economic moat. Furthermore, returns Read more

Bulls Say

Prudential's scale allows it to pursue large acquisitions that are outside the reach of smaller competitors. The firm may be able to capture distressed companies at attractive valuations.

The dynamic rebalancing that accompanies many of the firm's variable annuities acts as a natural hedge against equity market volatility by shifting accounts into safer assets as the market declines.

Prudential's insurance offerings in Japan and Korea target a group of high-net-worth individuals who tend to be stickier to the firm. Read more

Bears Say

Prudential's offerings are essentially commodities by nature. Any product the firm designs can quickly be replicated by competitors.

The firm's balance sheet is highly leveraged, and relatively small losses in Prudential's investment portfolio will cause large declines in shareholders' equity.

Management has often made untimely capital decisions. Before the financial crisis, the firm was buying back large chunks of shares, only to reoffer them at severe discounts later. Read more

Strategy

Management intends to reinvest capital in its higher-return international and retirement businesses to drive earnings growth. In the U.S., the firm plans to expand distribution capacity to drive growth. Read more

Management

We believe that corporate governance at Prudential is good. The firm has been led by chairman and CEO John Strangfeld since 2008. Although his tenure as leader has been brief, Strangfeld has been with Prudential more than 30 years. We applaud the appointment Read more

Profile

Prudential Financial sells insurance and asset-management products to individuals and institutions. The firm has a large international insurance division that operates in Read more

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Week Ahead Market Report: 2/8/2010
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