What happens to stocks if AI loses momentum?
On Friday, Evercore ISI made adjustments to its valuation of Prudential Financial (NYSE:PRU), reducing the price target from $134.00 to $123.00 while maintaining an In Line rating. According to InvestingPro data, the stock is currently trading near its Fair Value, with analyst targets ranging from $80 to $134. The revision followed Prudential (LON:PRU)’s first-quarter earnings of 2025, which prompted a reassessment of the company’s earnings per share (EPS) run rate as it enters the second quarter. With eight analysts recently revising their earnings estimates downward, investors seeking deeper insights can access comprehensive analysis through InvestingPro’s detailed research reports. The firm noted that the equity market’s current performance is exerting a drag on Prudential’s results, estimating a quarterly EPS reduction of approximately 5 cents, or 1-2%.
Prudential’s earnings are also no longer significantly impacted by the Japanese yen’s appreciation, as the proportion of EPS denominated in yen has become immaterial due to more US dollar-denominated products in Japan and a greater allocation of US dollar assets beyond those products. Evercore ISI’s price target adjustment takes into account recent disclosures on Prudential’s free cash flow, which has informed their valuation approach.
The firm has not yet adjusted the assumptions for alternative returns lower for Prudential or most other companies. However, they note that the 8% return assumed in Prudential’s guidance may put pressure on EPS over the next few quarters if market conditions remain unfavorable. InvestingPro data shows the company’s P/E ratio at 16.32x, which appears high relative to its near-term earnings growth prospects. Revenue declined 0.13% in the last twelve months, and analysts anticipate further sales decline in the current year. They reference CRBG’s alternative returns, which are projected at half the level reported for the first quarter of 2025, around 5.5% annualized.
Prudential’s other revenue streams, such as those from PGIM, may also face pressure, although the shortfall in the first quarter was deemed modest, and adjustments to these assumptions have not been made at this time. New CEO Andy Sullivan highlighted on the earnings call that Prudential is facing revenue headwinds across various businesses, including ongoing return on assets pressure in individual retirement due to variable annuity outflows, increased surrenders in Japan, and a likely pause in US pension risk transfer activities amid economic uncertainty.
Evercore ISI also pointed to potential positives for Prudential, such as clarity on Japan capital under the new Economic Solvency Ratio (ESR) expected with second-quarter earnings and the possibility of further risk transfer and tail risk reduction. Nonetheless, they concluded that the case for valuation upside for Prudential’s stock is not compelling at this time. One bright spot for investors is Prudential’s impressive dividend track record - InvestingPro data reveals the company has maintained dividend payments for 24 consecutive years, with 16 years of consecutive increases and a current yield of 5.21%. The company maintains a fair overall financial health score, suggesting stable fundamentals despite near-term challenges. For detailed metrics and additional ProTips about Prudential’s outlook, investors can access the complete InvestingPro Research Report.
In other recent news, Prudential Financial reported its first-quarter 2025 earnings, revealing a shortfall in both earnings per share (EPS) and revenue compared to analyst expectations. The company posted an EPS of $3.29, missing the forecasted $3.37, while revenue reached $13.41 billion, falling short of the anticipated $14.25 billion. Despite these misses, Prudential experienced an 8% increase in pretax adjusted operating income year-over-year, driven by favorable underwriting results and significant growth in Japanese retirement products. However, the company faced challenges with alternative investment income, which was $90 million below expectations.
Further developments included CFRA analyst Catherine Seifert downgrading Prudential Financial stock from Buy to Hold, reducing the price target from $130.00 to $110.00. This decision was influenced by mixed financial results and a challenging macroeconomic environment, leading to the conclusion that the stock lacks a near-term catalyst for growth. In the company’s business segments, the U.S. Businesses unit saw a 16% increase in profits, contrasted by an 8% decline in PGIM profits and a 5.4% fall in International Business profits.
Prudential’s management emphasized ongoing efforts to derisk and enhance operational efficiency, with CEO Andy Sullivan expressing confidence in the company’s trajectory. Looking forward, Prudential aims for a 5-8% growth in core adjusted operating EPS through 2027, despite anticipating a 3-4% EPS drag in 2025 due to factors in Japan and variable annuity runoff. The company remains focused on capital-efficient, high-growth areas to navigate current challenges.
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