Prudential Financial saw improvements to its profitability after impacts from the pandemic hurt it last year. The company has undergone initiatives to transform its business mix while also saving $750 million in costs by 2023, with $400 million of that coming this year.
Last year, Prudential was hit hard by the pandemic and posted a net loss of $146 million as a result. This came after a $4.1 billion profit in 2019.
The financial services company was hurt by investment losses totaling $3.8 billion along with a decline in premium revenue of 9% from the year before. Together this caused total revenue to drop 12% to $57 billion.
But investors are optimistic about signs of a turnaround. In the first quarter, revenue of nearly $17 billion was a 26% improvement from the year before, and net income came in at $2.8 billion in the quarter after posting a $270 million loss the year before.
Prudential has worked toward changing its business mix and earnings profile, looking to pivot toward products that are less market- and rate-sensitive. One such product is FlexGuard, an indexed variable annuity that gives customers different levels of protection and the ability to boost income in retirement. FlexGuard sales grew to $1.6 billion in the first quarter from $1.2 billion in the fourth quarter, and accounted for 84% of its annuity sales.
With this pivot, along with its cost-saving measures, CEO Charlie Lowrey said, “We expect Prudential Financial to emerge as a higher-growth, less market-sensitive, and more nimble company.”
Prudential Financial is a solid company that is on track for recovery, and its stock still looks to be discounted. It trades relatively cheaply with a P/E of 15.1, and a forward P/E of 7.6 that makes it look even cheaper. Not only that, but it’s also a great income stock with a dividend yield of 4.55%.
Management’s strategic shift in its business mix and its cost savings have helped the stock recover in the first half of the year, and are positive signs for shareholders.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
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