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Prudential Financial (PRU) Q3 Earnings: A Beat in Store?

Zacks Equity Research
Updated

Prudential Financial, Inc. PRU is slated to report third-quarter 2018 results on Nov 7, after the market closes. In the last reported quarter, the company came up with a negative earnings surprise of 2.27%.

Why a Likely Positive Surprise?

Our proven model clearly shows that Prudential Financial has the right combination of the following two key ingredients to beat estimates this earnings season.

Earnings ESP: Prudential Financial has an Earnings ESP of +0.12%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Prudential Financial, Inc. Price and EPS Surprise

 

Prudential Financial, Inc. Price and EPS Surprise | Prudential Financial, Inc. Quote

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Zacks Rank: Prudential Financial carries a Zacks Rank #2 (Buy), which increases the predictive power of ESP as stocks with a favorable Zacks Rank #1 (Strong Buy), 2 or 3 (Hold) along with a positive ESP have significantly higher chances of an earnings beat.

Conversely, the Sell-rated stocks (#4 or 5) should never be considered going into an earnings announcement, especially when the company is seeing negative estimate revisions.  

Factors Driving the Better-Than-Expected Earnings

Prudential Financial is expected to witness bottom-line growth in the soon-to-be-reported quarter owing to improvement in business, expanded product offerings and broader distribution capabilities. Also, share buyback might boost this bottom-line upside.

Additionally, possibility of solid core growth in asset-based businesses including Investment Management, Retirement as well as Individual Annuities along with better-than-expected margins in the Group Insurance segment and consistent underlying results in international operations are likely to contribute to this probable improvement.

Further, a lower tax rate might positively impact the company’s bottom line. In fact, the Zacks Consensus Estimate for earnings in the quarter to be reported is pegged at $3.14 per share, reflecting a significant year-over-year increase of 4.3%.

The company expects a better-than-expected core performance of its overall businesses in the yet-to-be-reported quarter, mainly on the back of higher fees in its Annuities and Investment Management segments as well as sustained business growth in International Insurance.

With respect to Total International Insurance segment, the company is estimated to display a solid performance on probable higher contributions from Life Planner plus Gibraltar Life and Other operations.

Prudential Financial’s Retirement segment is anticipated to benefit from the company’s penetration and leadership in the pension risk transfer (PRT) business.

The company is projected to gain from a gradually improving interest rate environment and a favorable investment income from higher invested asset balances.
 
It is likely to experience top-line growth in the to-be-reported quarter, mainly aided by a possible increase in premiums, investment income, policy charges as well as fee income. The Zacks Consensus Estimate for the metric is pegged at $13.5 billion, translating into a 1.1% increase on a year-over-year basis.

However, the company is likely to incur escalated expenses, mainly due to a probable increase in insurance and annuity benefits, interest expense as well as general and administrative expenses. This in turn, might restrict the operating margin expansion, hurting the company’s overall performance in turn.

Other Stocks to Consider

Some other stocks worth considering from the finance sector with the right combination of elements to also outshine estimates this time around are as follows:

National Health Investors, Inc. NHI is set to report third-quarter earnings on Nov 6 and has an Earnings ESP of +0.24%. The company is a Zacks #2 Ranked player. You can see the complete list of today’s Zacks #1 Rank stocks here.

TCG BDC, Inc. CGBD has an Earnings ESP of +1.65% and a Zacks Rank of 2. The company is set to release third-quarter earnings on Nov 6.

James River Group Holdings, Ltd. JRVR has an Earnings ESP of +2.52% and is a #3 Ranked stock. The company is set to announce third-quarter earnings on Nov 7.

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Prudential Financial, Inc. (PRU) : Free Stock Analysis Report
 
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TCG BDC, Inc. (CGBD) : Free Stock Analysis Report
 
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