Prudential Stock Declines 5.3% – Is the Valuation Justified?

Standing out among the Street's worst performers today is Prudential, a life insurance company whose shares slumped -5.3% to a price of $18.61, 27.6% below its average analyst target price of $25.71.

The average analyst rating for the stock is buy. PUK lagged the S&P 500 index by -5.0% so far today and by -54.7% over the last year, returning -30.2%.

Prudential plc, through its subsidiaries, provides life and health insurance, and asset management solutions to individuals in Asia and Africa. The company is part of the financial services sector, alongside a staggering variety of banking, mortgage, insurance,and credit service companies. If there is one common denominator among all companies in the sector, it’s that they are all dedicated to maintaining and developing new systems for the storage and transfer of value and risk.

Prudential's trailing 12 month P/E ratio is 15.0, based on its trailing EPS of $1.24. The company has a forward P/E ratio of 13.1 according to its forward EPS of $1.42 -- which is an estimate of what its earnings will look like in the next quarter. The P/E ratio is the company's share price divided by its earnings per share. In other words, it represents how much investors are willing to spend for each dollar of the company's earnings (revenues minus the cost of goods sold, taxes, and overhead). As of the second quarter of 2024, the finance sector has an average P/E ratio of 15.89, and the average for the S&P 500 is 27.65.

It’s important to put the P/E ratio into context by dividing it by the company’s projected five-year growth rate. This results in the Price to Earnings Growth, or PEG ratio. Companies with comparatively high P/E ratios may still have a reasonable PEG ratio if their expected growth is strong. On the other hand, a company with low P/E ratios may not be of value to investors if it has low projected growth.

Prudential's PEG ratio of 1.71 indicates that its P/E ratio is fair compared to its projected earnings growth. Insofar as its projected earnings growth rate turns out to be true, the company is probably fairly valued by this metric.

Value investors often analyze stocks through the lens of its Price to Book (P/B) Ratio (its share price divided by its book value). The book value refers to the present value of the company if the company were to sell off all of its assets and pay all of its debts today - a number whose value may differ significantly depending on the accounting method. Prudential's P/B ratio is 2.87 -- in other words, the market value of the company exceeds its book value by a factor of more than 2, so the company's assets may be overvalued compared to the average P/B ratio of the Finance sector, which stands at 1.76 as of the second quarter of 2024.

Prudential is likely overvalued at today's prices because it has a Very low P/E ratio, an average P/B ratio, and No published cashflows with an unknown trend. The stock has poor growth indicators because of its strong operating margins with a positive growth rate, and a negative PEG ratio. We hope this preliminary analysis will encourage you to do your own research into PUK's fundamental values -- especially their trends over the last few years, which provide the clearest picture of the company's valuation.

The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.