Is Now the Time to Buy Prudential?

LONDON -- I'm always searching for shares that can help ordinary investors like you make money from the stock market.

So right now I am trawling through the FTSE 100 and giving my verdict on every member of the blue-chip index. Simply put, I'm hoping to pinpoint the very best buying opportunities in today's uncertain market.

Today, I am looking at Prudential  (LSE: PRU  ) (NYSE: PUK  ) to determine whether you should consider buying the shares at 1,097p.

I am assessing each company on several ratios:

Price-to-earnings (P/E): Does the share look good value when compared against its competitors?

Price Earnings Growth (PEG): Does the share look good value factoring in predicted growth?

Yield: Does the share provide a solid income for investors?

Dividend cover: Is the dividend sustainable?

So let's look at the numbers:

Stock Price 3-yr EPS growth Projected P/E PEG Yield 3-yr dividend growth Dividend cover
Prudential 1,097p 60% 12.3 1 2.8% 22% 3

The consensus analyst estimate for this year's earnings per share is 89p (11% growth) and dividend per share is 31p (4% growth).

Trading on a projected P/E of 12.3, Prudential is slightly cheaper than its peers in the life insurance sector, which are currently trading on an average P/E of around 13.2.

Prudential's P/E and double-digit growth rate give a PEG ratio of around 1, which implies the share is fairly priced for the near-term earnings growth the firm is expected to produce.

Offering a 2.8% yield, Prudential's dividend yield is below the life insurance sector average of 4%. In addition, Prudential has a three-year compounded dividend growth rate of only 22%, implying the yield will continue to underperform that of its peers.

However, the dividend is more than three times covered by earnings, giving Prudential plenty of room for further payout growth.

So, is now the time to buy Prudential?
Shares in life insurance provider Prudential have been going from strength to strength over the last year, rising nearly 50% compared to the FTSE 100 as a whole, which only gained 13% over the same period.

Nonetheless, I still believe that the company looks undervalued in comparison to its peers in the sector.

You see, unlike the majority of its peers in the life insurance sector, which have almost no international diversification, Prudential generates 50% of its income from Asia, where the life insurance market is growing quickly -- in line with rapidly rising incomes. Indeed, during 2012, the company's income from its Asian operations grew by 26%, to £988 million.

In addition, Prudential has recently made a strategic switch, to start offering products that boast a shorter lead time to producing a profit. This means that the company has been able to drastically improve its profitability and cash generation, which could pave the way for further shareholder returns or dividend growth.

So, overall, based on Prudential's current discount to sector peers, solid cash generation, and potential for increasing shareholder returns, I believe now looks to be a good time to buy Prudential at 1,097p.

More FTSE opportunities
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In the meantime, please stay tuned for my next verdict on a FTSE 100 share.


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