Thursday, October 7, 2010

Prudential Financial upgraded at Barclays Capital

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By IB Times Staff Reporter | October 7, 2010 3:31 AM EDT

Barclays Capital upgraded rating of the U.S. insurer Prudential Financial Inc. to 'equal weight' from 'underweight' and increased its price target to $61 from $60, on largely valuation.

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"With Prudential's announcement last week that it will spend $4.2 billion to acquire AIG's Star Life Insurance Co. Ltd. and AIG Edison Life Insurance Co., two major AIG life subsidiaries in Japan, concerns we had that Prudential would not be able to deploy the bulk of the $8.3 billion in excess capital it had at year-end 2009 have abated," said Eric Berg, an analyst at Barclays Capital.

Eric Berg said not only has Prudential managed put to work more than half of the excess capital, it has done so in a manner that in his opinion could jump-start the company's growth prospects in Japan by focusing Prudential squarely on what he expects will be strong Japanese retirement market.

"The reason we view Prudential as only a 2-Equal Weight is now largely valuation. However much upside we see in Prudential, we see even more upside in such deep-value names in the sector as Lincoln, Hartford, Genworth, and in the small-cap area National Financial Partners" Eric Berg wrote.

Eric Berg said Lincoln is trading at 65 percent of book value, Hartford is trading at 53 percent of book value, Genworth, trading at 48 percent of book value, and National Financial Partners is trading at a 5.9 times of 2010 price-to-earnings.

While Prudential's proposed acquisition of Star and Edison has, in Berg's opinion, dramatically increased the likelihood Prudential will achieve its target of a 12 percent to 13 percent return on equity (ROE) by 2012 from 9.5 percent in 2009.

The entire life insurance industry is looking at a tougher operating environment today than at the start of 2010, an environment that because of the sharp drop in interest rates and the renewed softness in the economy could well lead to negative revisions to consensus' earnings estimates for the remainder of 2010 and to disappointing company earnings guidance for 2011, Barclays Capital said in a report to clients.

The brokerage lowered its 2010 EPS estimate for Prudential to $5.87 from $5.94 and its 2011 estimate to $6.48 from $6.59.

Prudential Financial shares closed Wednesday up 0.20 percent at $54.13 on the NYSE.

This article is copyrighted by International Business Times, the business news leader

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What do you know! After my last post saying Prudential are pushing themselves out and this news comes along to prove it. Seems the best form of defence is attack.

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