“Prudential Financial, Inc. (PRU 66.60 NYSE – yield 2.40%), a financial services leader with approximately $1.06 trillion of assets under management as of December 31, 2012, has operations in the U.S., Asia, Europe and Latin America. Prudential offers investment management, group insurance and other financial services in the U.S., and life insurance overseas. Sales moved up sharply in 2012 as a result of acquisitions and two new major contracts for pension services. Acquisition costs, sluggish growth in the insurance business and higher claims in the disability business caused earnings per share to slip 5%. Prudential has exciting prospects for 2013. Higher assets under management and increased pricing in the annuities business will add profits. The investment management business in the U.S. and insurance sales overseas will also provide a boost in 2013. My forecast includes sales growth of 10% and earnings per share increase of 21% to 7.88 for the 12 months ending 3/31/14. Starting in 2013, the company will pay dividends quarterly. Prudential will likely hike the dividend from an annual rate of 1.60 in 2012 to 1.80 in 2013. On May 1, Prudential reported excellent first-quarter sales and earnings results. Sales climbed 13% and EPS jumped 42%, well ahead of my forecast. The company’s purchase of Hartford’s individual life insurance business in January and last year’s new contracts with General Motors and Verizon to manage part of their pension plan risk transactions provided a big boost to sales and earnings. The new risk business and acquisitions will push revenues and earnings considerably higher in 2013 and 2014. At 9.3 times latest earnings per share, and with a dividend yield of 2.9%, PRU shares are clearly undervalued. Max Buy Price 61.45, Min Sell Price 89.71, Medium Risk.”
J. Royden Ward, Cabot Benjamin Graham Value Investor, www.cabot.net, 978-745-5532, May 2013
