Prudential spikes as analysts see adequate capital

NEW YORK - Prudential Financial Inc. shares jumped Friday, as analysts said the company's capital and liquidity remain adequate, calming investors' concerns about the insurer's health.

Shares of the Newark, N.J.-based company spiked $4.90, or 23 percent, to $26.07 in afternoon trading. Shares are down about 73 percent for the year.

On Thursday, Prudential issued earnings guidance below Wall Street's estimates for this year and next as it continues to battle disruptions in the financial markets. Prudential had withdrawn its forecast for the remainder of the year in October, when it reported a third-quarter loss due to financial market turmoil.

While analysts generally lowered their earnings estimates on Prudential in line with the company's expectations, most were encouraged by the insurer's current capital and liquidity position.

"Management made positive efforts in the fourth quarter to bolster the capital position of Prudential's primary U.S. insurance subsidiary and also provided a roadmap of how the holding company will address its liquidity concerns," wrote Deutsche Bank analyst Darin Arita in a note to clients Friday. "It appears that the company has sufficient capital to maintain double A financial strength ratings."

Keefe, Bruyette & Woods analyst Jeffrey Schuman said Prudential "surprised on the upside by creating more breathing room than we expected in its regulatory balance sheet."

Many insurers, including Prudential, have been under pressure to maintain solid capital positions to avoid damaging downgrades by ratings agencies. Keeping high ratings is key for insurers because lower ratings can raise borrowing costs, and in some cases could even mean lost business.

At an investor conference in New York Thursday, Prudential announced plans to sell its minority stake in retail brokerage Wachovia Securities to Wells Fargo & Co., and confirmed that it applied for an investment under the government's capital purchase program.

Analysts estimated that Prudential's capital position could be boosted by $1.7 billion from the sale of its stake in Wachovia Securities, which it formed with Wachovia Corp. in July 2003. This provides the company with some flexibility, said Fox-Pitt Kelton analyst Mark Finkelstein, and "at minimum, it does lower the risk of a capital raise at discounted valuations."

Deutsche's Arita trimmed his 12-month target price on the stock to $31 from $40; he maintained a "Hold" rating on the shares. Fox-Pitt's Finkelstein maintained an "Outperform" rating on the shares, but cut his target price to $45 from $56.

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