Prudential: Interest Rates or the Upgrade?

Sometimes even a stodgy life insurer needs some love, and Merrill Lynch has provided it in spades to Prudential (PRU).

NHLI via Getty Images Martin Brodeur plays at Prudential Center. Merrill Lynch makes the save. Or something like that.

That’s because Merrill Lynch’s Seth Weiss and Ian Ryave decided to upgrade Prudential today. They explain why:

We are upgrading Prudential from Neutral to Buy and raising our PO by 10% from $94 to $103. PRU has been the poorest performing life stock to start the year (down 6% vs. a 2% increase in S&P500 and a 1% increase in the median life name), and we view valuation as attractive. The increase in our PO is driven by 1) increased confidence that PRU can sustain an operating ROE at or above 14% and 2) new peaks in equity market suggesting a lower cost of equity for the industry.

It’s been a good day for life insurers across the board today, thanks to speculation that the Fed could get more hawkish following today’s jobs report–and higher interest rates would benefit insurers. Shares of Prudential have gained 2% to $88.47 at 2:53 p.m. today, while Metlife (MET) has risen 1.3% to $53.04 and Lincoln National (LNC) has advanced 1.6% to $52.75. American International Group (AIG) has dropped 0.2% to $51.05.