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We are retaining our Neutral recommendation on Principal Financial Group Inc. (PFG - Analyst Report) based on its mixed third-quarter 2013 results.

Why the Reiteration?

Principal Financial’s third-quarter earnings per share surpassed the Zacks Consensus Estimate as well as the year-ago number by 3.5% and 22% respectively. Reduction in expenses largely aided the upside. However, the top line missed on both counts primarily due to a substantial decline in premiums and other considerations.

Counting on the positives, Principal Financial’s businesses across most lines and segments continue to deliver solid results. The company expects the momentum to continue in 2013 and beyond.

The company’s assets under management (AUM) shows a steadily increasing trend driven by better results at three asset management and asset accumulation segments. AUM grew 19% year over year as on Sep 30, 2013.

Going forward, we believe AUM growth will be supported by the company’s extensive distribution footprint, best-in-class solutions and operational discipline. Principal Financial expects total AUM to grow at 15% CAGR from $302 billion in second-quarter 2013 to $650 billion in 2018.

This Zacks Rank #2 (Buy) investment management company’s inorganic growth story also looks impressive. Over a span of three years, Principal Financial has closed seven acquisitions, adding fee-based businesses and expanding its global footprint.

Additionally, Principal Financial’s capital deployment through share buybacks and dividend payment looks impressive, making it an attractive pick for yield-seeking investors. With respect to buyback, in the third quarter, it spent $62 million and has $55 million remaining of the $150 million authorization.

Management has set aside $400–$600 million for quarterly dividends, share buybacks and acquisitions in 2013, of which $480 million has already been allocated. It also expects to deploy $500–$700 million for quarterly dividends, strategic acquisitions and share buybacks as well as deleverage its balance sheet.

Also, its current dividend yield of 2.09% is higher than the industry yield of 1.38%. Principal Financial announced its intention to pay out 40% of its operating income as dividend, going forward. We expect its increased focus on fee-based revenues to enable it to return more to the shareholders.

On the tepid side, low interest rate environment as well as increasing debt keeps us cautious.

Other Stocks to Consider

Other investment managers that look attractive at present include Brookfield Asset Management Inc. , Kohlberg Kravis Roberts & Co. L.P. (KKR - Snapshot Report) and Virtus Investment Partners, Inc. (VRTS - Snapshot Report). All these stocks carry a Zacks Rank #1 (Strong Buy).

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