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Goldman upgrades Prudential Financial, downgrades MetLife

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Goldman upgrades Prudential Financial, downgrades MetLife

Goldman Sachs analyst Alex Scott highlighted what he sees as Prudential Financial Inc.'s strong cash flow and capital redeployment yield in his upgrade of its shares to "buy," and cited a longer-than-expected forecast for MetLife Inc. to achieve ROE improvement in downgrading his call on the company to "neutral."

Scott views Prudential Financial as a pocket of opportunity in an otherwise underperforming life insurance sector. The analyst said that the insurer's cash flow yields and capital levels will help its regulation and second-quarter actuarial review. Although net outflows are likely to continue for its variable annuity business, Prudential is in a position to benefit from the capital released from that business line during the next several quarters, Scott wrote.

The analyst lowered his price target on Prudential to $117 from $122, and held his EPS estimates at $10.58 for 2017, $12.12 for 2018, $12.84 for 2019 and $13.62 for 2020.

MetLife's progress in expense savings has been slower than Scott expected, and the company's retirement business will face pressure from the flattening and potentially inverting yield curve.

Scott cut his price target for MetLife to $52 from $54. He adjusted his 2017 EPS estimate downward to $3.92 from $4.44, but kept his 2018 estimate at $5.06. Further out, the analyst lowered his EPS estimate to $5.45 from $5.50 for 2019 and to $6.01 from $6.09 for 2020.