Prudential inks pension risk transfer agreement with Verizon Communications

Commenting on the deal, John Nadel and Alex Levine, both analysts at the brokerage firm Sterne Agee, Birmingham, Ala., write in a press statement that they expect Prudential to deploy about $400 million of equity to support the transaction. The investment would likely contribute about $0.12 to Prudential’s earnings per share in 2013, assuming a 13-14% return on earnings.

“A key question is whether [Prudential] has now ‘used up’ all or most of its capital capacity, such that buybacks [of Prudential stock] will be curtailed,” the analysts write. “Similar to [Prudential’s deal with General Motors] announced earlier this year, we believe the typical capital necessary to support a pension transfer is around 7-8% of liabilities at the insurance company level.”

The Sterne Agee analysts go onto express confidence in Prudential’s ability to deliver on the company’s 13-14% return on earnings objective. The vote of confidence assumes, among other things, that Prudential will maintain quarterly buybacks of stock totaling $250 million and that Prudential will deploy $4 billion in capital in 2013 to fulfill aggregate pension transfer obligations.

The Sterne Agee analysts thus maintain a “buy” rating on Prudential stock.