Principal Financial Group (PFG)

We are upgrading our recommendation on the shares of Principal Financial (PFG - Analyst Report) to Outperform. The company's third quarter operating earnings were much ahead of the Zacks Consensus Estimate, driven primarily by the sequential improvement in domestic as well as global equity markets.

We believe that Principal's strong franchise within the pension sector, which is aided by its diversification both in terms of products and geography, positions it well to benefit from the gradual recovery of the credit market. However, rising unemployment is reducing the number of participants in existing employee benefit plans.

Though we are concerned about higher delinquencies in its commercial mortgage portfolio, we expect the company to benefit from its decent capital level and cost containment measures.