Bear of the Day: Prudential Financial (PRU)

Prudential Financial (PRU), a Zacks Rank #5 (Strong Sell), is one of the largest life insurers and asset managers in the U.S.

Its third-quarter earnings beat expectations, but the headline number masks a deteriorating picture. Revenue missed, earnings declined sharply year over year and Japan remains a growing headache.

With the stock trading near all-time highs after earnings, investors might want to take profits.

About the Company

Prudential is based in Newark, New Jersey, and operates through three main units:

-PGIM, its global asset manager.

-U.S. businesses spanning retirement, annuities, group insurance and individual life.

-International operations, led by Japan.

Assets under management and administration total $1.81 trillion. The quarterly dividend is $1.40 per share.

The company is valued at $41 billion and has a forward PE of 14. The stock has Zacks Style Scores of "B" in Value, "D" in Growth, and "D" in Momentum.

A Beat on a Lowered Bar

Adjusted operating EPS of $3.77 topped the $3.31 consensus. but fell from $4.26 a year ago. Revenue declined 14.3% year over year to $13.49 billion and missed estimates by 3.35%. Net premiums earned dropped 43% to $5.89 billion. Adjusted book value per share edged up to $102.39 from $99.25.

Management was clear about what held the quarter back: lower Japan earnings more than offset solid results in PGIM and the U.S. businesses.

Shares moved 5% higher after the report.

The Japan Problem Isn’t Going Away

Prudential of Japan voluntarily halted new sales in February after employee misconduct involving inappropriate investment solicitations. In April, the company extended that pause to November 5. It estimated a 2026 pretax earnings hit of $525 million to $575 million and about $1 billion in total including 2027. It also withdrew its 5% to 8% intermediate-term EPS growth target.

The regulator has since taken the decision out of management’s hands. In October, Japan’s Financial Services Agency barred Prudential of Japan from new business until January 31, 2027. It also partially suspended Gibraltar Life’s captive Life Consultant sales channel.

Management still describes the broader Japan platform as resilient, but Gibraltar had been carved out of the original suspension. Even after sales resume, the ramp-up costs and lost business will weigh on 2027.

Estimates Moving Lower

Estimate revisions were trending lower heading into the report. The current quarter consensus sits at $3.03 per share, and the full-year number is $13.51. The longer Japan freeze, the Gibraltar restrictions and the earnings lost to divestitures point to more cuts ahead.

Investors need to keep an eye on these numbers going forward, especially to justify the up move after the print.

Technicals

The chart looks good, as the stock is trading near all-time highs. The issue here is that whenever PUR hits the $120-30 level, it's sold off. Considering the issues spelled out below, investors should look to take profits and enter at lower levels.

The 50-day MA is at $115, while the 200-day is $109.

In Summary

Annuity sales and PGIM flows are moving in the right direction, and a 4%-plus dividend yield will tempt income investors. But the Japan remediation keeps getting longer and wider, revenue is shrinking, the growth target is gone and divestitures are cutting into the earnings base.

Until estimates stop falling, Prudential is a stock to avoid.

For investors looking for a name in the space, look to CNO Financial Group (CNO). The company is coming off a 74% earnings beat and has a Zacks Rank #2 (Buy).

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This article originally published on Zacks Investment Research (zacks.com).

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