Will Prudential Financial Continue To Explode?

With shares of Prudential Financial (NYSE:PRU) trading around $79, is PRU an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Prudential Financial is a financial services company. The company has operations in the United States, Asia, Europe and Latin America. Through its subsidiaries and affiliates, Prudential Financial offers an array of financial products and services, including life insurance, annuities, retirement-related services, mutual funds and investment management.

Prudential Financial will appear before the Financial Stability Oversight Council to argue that it’s not a ”systemically important financial institution.” This group will see increased regulation and was created in the aftermath of the recession to help identify risks and protect against risks to the United States financial system. American International Group (NYSE:AIG) and GE Capital, part of General Electric (NYSE:GE), also form a part of this group.

T = Technicals on the Stock Chart are Strong

Prudential Financial stock witnessed an explosive move higher over the last several months. The stock has broken above a multi-year range and looks poised to continue higher. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Prudential Financial is trading above its rising key averages which signal neutral to bullish price action in the near-term.

PRU

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of Prudential Financial options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Prudential Financial Options

26.48%

3%

1%

What does this mean? This means that investors or traders are buying a very small amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

August Options

Flat

Average

September Options

Flat

Average

As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a very small amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Mixed Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Prudential Financial’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Prudential Financial look like and more importantly, how did the markets like these numbers?

2013 Q1

2012 Q4

2012 Q3

2012 Q2

Earnings Growth (Y-O-Y)

-176.35%

-123.85%

-144.34%

193.67%

Revenue Growth (Y-O-Y)

5.84%

292.90%

-11.97%

31.79%

Earnings Reaction

6.96%

-2.75%

-4.74%

5.17%

Prudential Financial has seen decreasing earnings and improving revenue figures over the last four quarters. From these numbers, the markets have mixed feelings about Prudential Financial’s recent earnings announcements.

P = Average Relative Performance Versus Peers and Sector

How has Prudential Financial stock done relative to its peers, Metlife (NYSE:MET), Aegon (NYSE:AEG), Genworth Financial (NYSE:GNW), and sector?

Prudential Financial

Metlife

Aegon

Genworth Financial

Sector

Year-to-Date Return

48.06%

50.15%

20.34%

79.23%

41.27%

In a strong sector, Prudential Financial has been a relative average performer, year-to-date.

Conclusion

Prudential Financial is a financial services company that provides life insurance, annuities, retirement-related services, mutual funds and investment management. The company is attempting to fight the designation as a “systematically important financial institution” as it comes with increased regulation. The stock has been trending higher and looks to continue this path. Over the last four quarters, earnings have been decreasing while revenue figures have been improving which has produced mixed feelings among investors. Relative to its strong peers and sector, Prudential Financial has been an average year-to-date performer. Look for Prudential Financial to continue to OUTPERFORM.

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