Prudential Financial, Inc.

Covering Analyst: Christian Meuniermeunier@uoregon.edu

Company Overview› Founded in 1875 › Became a mutual company in 1915, offering group

life insurance› Went public in 2001, splitting up the company into

Closed Block and Financial Service Business› Has since expanded internationally, offering a

variety of products› Manages over $1 trillion in assets

Product Offering› Individual Life Insurance› Group Life Insurance› Asset Management

-Retirement Solutions-Pension-Risk Transfers-Opportunity to invest in mutual funds

Business Divisions› U.S. Individual and Group Life Insurance (18%)› International Insurance & Investments (41%)› U.S. Retirement Solutions & Investment

Management (22%)› Closed Block Business (14%)› Corporate and Other (5%)

Business Growth Strategies› Domestic Growth Strategies

-Acquisitions (Hartford Individual Life Insurance)-Organic Growth (Verizon and General Motors pension transfers)

› International Growth Strategies-Growth in Asia through acquisitions-Continued presence in South America and Eastern Europe

› Joint Ventures-China and India

Industry Overview› Life Insurance and Annuities

-Expected annual growth of 3.4%-Highly regulated both internationally and domestically-Recent low interest rates have halted growth -Highly saturated U.S. industry has led to international growth-No company in the U.S. has over a 4% share of the industry-Ageing population in Japan and U.S. will improve sales

Macro Factors› Prudential is highly dependent on economic

conditions-Group Life Insurance sales-Individual Life Insurance sales-Annuity revenue is dependent on investment gains

› Interest Rates-High percentage of investments are in bonds

Portfolio History › Tall Firs

- 220 shares at $64.95. Purchased 10/02/2011- 1.62% of portfolio, has returned -13.30%

› Svigals - 40 shares at $63.46. Purchased 11/02/ 2011

Revenue Model› Split into 5 divisions› U.S. Individual Life and Group Insurance

–Improving economy-Acquisition of Hartford Life Insurance

› International Insurance-Foreign acquisitions will increase sales-Aging population in Japan and Korea

› U.S. Retirement Solutions and Investments–Pension transfers -Recent growth has been slowed due to interest rate

Revenue Model Continued› Closed Block Business

-Policies that were in place during demutualization-Will expire

› Corporate and Other-Averaged out the last five years to find fixed value

Working Capital Expenditure› Very few current assets

- Included 50% of cash and cash equivalents in my model

› Trend of greater liabilities expected to continue-Used up current assets for acquisitions

-Must have a positive working capital terminal year

› Company does not have capital expenditure

Discounted Cash Flow› Benefits

- Policy pricing from acquisitions cannot be changed by Prudential

› General and Administrative Costs- Cost projected as % of revenue

› Dividends to Policyholders -Will increase in the future due to high competition

› Interest Expense on Policies-Greater Investment income-Set themselves apart from competition

Amortization and Depreciation› Amortization of Deferred Policy Acquisitions

-Costs that have to do with selling new and renewed policies (commission)-Constant rate, lowers towards end due to efficient distribution channels

› Depreciation-Flat rate due to Prudential not increasing equipment with revenue

BetaBeta SD Weighting

3 Year Daily Regression 1.74 0.07 50.00%

5 Year Weekly Regression 2.24 0.06 10.00%1 Year Daily Regression 1.69 0.02 20.00%3 Year Weekly Regression 1.68 0.02 20.00%

Prudential Financial, Inc. Beta 1.768

Final DCF Valuation Discounted Free Cash Flow Assumptions Considerations Implied Price

Tax Rate 28.00% Terminal Growth Rate 3.00% Terminal Growth RateRisk Free Rate 1.89% Terminal Value 64525.60 Avg. Industry Debt / Equity 68.68%Beta 1.768 PV of Terminal Value 40,924 Avg. Industry Tax Rate 26.75%Market Risk Premium 7.00% Sum of PV Free Cash Flows 15,743 Current Reinvestment Rate 26.38%% Equity 49.92% Firm Value 56,667 Reinvestment Rate in Year 2017E 7.59%% Debt 50.08% Total Debt 26,858 Implied Return on Capital in Perpetuity 39.52%Cost of Debt 5.38% Cash & Cash Equivalents 13,102 Terminal Value as a % of Total 72.2%CAPM 14.27% Market Capitalization 29,809 Implied 2013E EBITDA Multiple 11.2xWACC 9.06% Fully Diluted Shares 468 Implied Multiple in Year 2017E 5.2x

Implied Price 63.69 Free Cash Flow Growth Rate in Year 2017E 3%

Current Price 57.21Undervalued 11.34%

Comparable Analysis › Looked at market capitalization, product offering,

beta, geographic sales and growth.

› MetLife (35%), Aflac (35%), Principal Financial Group (20%), Manulife (10%), AIG (0%)

Multiples

Multiple   Implied Price Weight

EV/Gross Profit   $79.05 40.00%

EV/EBITDA   $45.38 60.00%

Price Target   $58.85

Current Price   $57.21

Undervalued   2.86%

Final ValuationFinal Implied Price

DCF Analysis 65.00% 63.69Comparable Analysis 35.00% 58.85Current Price $57.21Price Target $62.00

Undervalued 8.37%

Catalysts › Upside

-Increase in interest rates-Entry into China and India-Decreased regulation

› Downside-Continued high unemployment-Interests remain at historical lows

Questions?

Recommendation › Hold in both portfolios

› Withstood difficult economic conditions

› Strong global position

› Intelligent acquisitions