Today we have a timely buy idea from Richard Segarra. This financial just reported its first profit in five quarters, which has given the stock a jolt of positive momentum that has broken it out of a three-month trading range on the upside.
Prudential Financial (PRU)
from Ford Equity Research Report
Prudential Financial is a holding company. The company provides products and services such as life insurance, annuities, retirement-related services, mutual funds and investment management services through its subsidiaries or affiliates. ... As of December 31, 2012, the company had approximately $1.06 trillion of assets under management.
We project that PRU will strongly outperform the market over the next six to 12 months. This projection is based on our analysis of three key factors that influence common stock performance: earnings strength, relative valuation and recent price movement.
Earnings Strength is positive. Ford’s earnings momentum measures the acceleration or deceleration in trailing 12 month operating earnings per share growth. The upward curvature of the plotted points in the graph below indicates that while Prudential’s earnings have increased from $6.52 to an estimated $8.17 over the past five quarters, they have shown acceleration in quarterly growth rates when adjusted for the volatility of earnings. This indicates an improvement in future earnings growth may occur.
[In addition,] analyst forecasts have recently been raised. The company recently reported better than expected results.
Relative Valuation is very positive. Prudential’s operating earnings yield of 10.1% ranks above 94% of the other companies in the Ford universe of stocks, indicating that it is undervalued. Ford measures the relative valuation of each company against all other companies in our research universe. Operating earnings yield, an earnings-to-price ratio based on the last three quarters of operating earnings and the current quarter’s estimate, has proven to be the most reliable relative valuation measure. A stock may stay undervalued or overvalued for a long period of time. For this reason, it is important to combine this factor with shorter-term predictive factors such as earnings momentum or price momentum to identify more imminent valuation adjustments.
Price Movement is positive. Prudential’s stock price is up 40.7% in the last 12 months, down 1.7% in the past quarter and up 4.0% in the past month. This historical performance should lead to above average price performance in the next one to three months.
Strong Buy.
Richard Segarra, CFA, Ford Equity Research Report, www.fordequity.com, 800-842-0207, November 1, 2013