Yesterday, the second largest U.S life insurer Prudential Financial Inc. (PRU) announced the resumption of its share repurchase program, with an authorization to buyback up to $1.5 billion of its outstanding common stock through June 30, 2012.
Prior to this, in November 2007, Prudential had authorized to repurchase up to $3.5 billion of its outstanding common stock in calendar year 2008. During that year, the company had acquired 29.3 million shares of its outstanding common stock for a total cost of $2.161 billion. But, considering the market conditions in 2008 and later, Prudential posted its worst loss as its investments in subprime securities and stocks declined in value. So, the company suspended the 2008 stock repurchase program effective October 10, 2008.
However, with a gradual improvement in equity markets and the overall economy, Prudential benefited from growth in its International Insurance businesses and stability in its core U.S insurance business. Also, strong results from its operations, focus on retirement solutions and asset management, driven by net flows and improving market conditions, favored the company.
The year 2010 testified to Prudential’s significant financial strength. In November 2010, the company increased its dividend by 60%, thereby restoring its dividend to 2007 level and marking a significant accomplishment given the challenging economic environment.
With an excess capital of about $1 billion, we think the company is poised to participate in the consolidation of the global life insurance and retirement market. With so much cash available for transactions, we believe Prudential has the capacity to execute an accretive acquisition, leading to its inorganic growth.
Newark, New Jersey-based Prudential competes closely with American International Group Inc. (AIG), MetLife Inc., (MET), and New York Life Insurance Co. The stock of Prudential carries a Zacks Rank # 3, which translates into a Hold recommendation over the short term (1-3 months). Also, over the longer term (6+ months), we rate the stock Neutral.
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