Prudential Financial (PRU) Garners Spot on Goldman Sachs's Conviction Buy List

(Updated - September 23, 2016 8:27 AM EDT)

Goldman Sachs upgraded Prudential Financial (NYSE: PRU) from Neutral to Conviction Buy with a price target of $93.00 (from $80.00), implying upside of 16%. Analyst Michael Kovac highlighted stabilized EPS and "macro optionality."

Kovac explained, "We upgrade PRU to Buy from Neutral and add it to the Conviction List, as its asset management/retirement/life franchise screens favorably given double-digit ROE and EPS growth while the stock trades at just 1x 2Q16 BV ex AOCI, <8x ‘17 EPS. Along with its life peers, PRU is highly correlated to the UST10Y, but we see fundamental upside from (1) inflecting earnings, as we are above consensus in 2017/18; (2) improving capital returns; and (3) a diverse base of undervalued operations. While PRU benefits from upside rate optionality (GSe 2% UST10Y at YE), we also see less near-term downside risk than rate sensitive peers after the firm completed its annual assumption review in 2Q."

Kovac sees catalyst form positive EPS revisions, improved capital deployment, its differentiated franchise, and optionality on higher rates. Discussing the latter, the analyst said, "Our work on relative valuation vs. interest rates implies that, despite the recent run, PRU’s P/E could expand >1x if the UST10Y rises to 2%. PRU is among the most liquid insurers and today trades at half the S&P’s multiple."

For an analyst ratings summary and ratings history on Prudential Financial click here. For more ratings news on Prudential Financial click here.

Shares of Prudential Financial closed at $80.14 yesterday.

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