Jefferies has reiterated its 'buy' rating on Prudential PLC (LSE:PRU), setting an ambitious price target of 1,800p - representing a 133% premium to the current share price.
It did so while analysing the insurer's options for deploying excess capital - in other words, whether its should or shouldn't start buying back its own stock.
The Pru has around $8.5 billion in free surplus, with about $4.25 billion considered readily deployable for growth, whether through organic or inorganic means.
However, actual holding company cash is closer to $3.5 billion, which, if utilised for a buyback, would represent over 13% of the market capitalisation, potentially providing significant support to the share price.
Despite the theoretical attractiveness of a buyback, Jefferies outlines several reasons why deploying all $3.5 billion may not be prudent.
These include maintaining a financial buffer for unforeseen needs, a $1 billion commitment to investing in new capabilities heavily front-loaded in the coming years, and the recurring costs associated with writing and renewing significant bancassurance deals.
These commitments suggest that a more realistic figure for a potential buyback would be around $1 billion, equating to only 3.7% of market capitalisation.
Jefferies argues that focusing on growth rather than a buyback might be more beneficial for Prudential in the long run.
The analysis suggests that a one-off buyback, while potentially underpinning the share price, might not substantially enhance shareholder returns in comparison to the dividends and buybacks provided by other companies in the sector.
Prudential's dividend yield stands at only 2%, and even with a 3.7% buyback, the total return to shareholders would only slightly exceed the average in the Asia-Pacific and global markets.
In afternoon trading, the Pru's shares were changing hands for 773p, up 14p.