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Principal Financial Provides Guidance for 2017; Shares Down

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Principal Financial Group Inc. (PFG - Free Report) recently provided the projections for 2017 and divulged its capital deployment plans. However, shares lost about 0.08% in the last trading session to finally close at $59.42 on Dec 6.

Principal Financial estimates net revenue growth in the range of 2–5% at Retirement and Income Solutions – Fees, and 5–10% at Retirement and Income Solutions – Spread.

Revenues are estimated to increase in the range of 4–8% at Principal Global Investors. The pre-tax return on revenues estimate is 34–37%. While management believes that the merger of Principal Global Investors and Principal Funds to create synergies over time, a sustained strong investment performance and product development will drive growth.

Principal International is expected to deliver net revenue growth between 11% and 14% in 2017. Management expects slight weakening of the U.S. dollar.

While solid sales and retention as well as employment recovery will drive Specialty Benefits premiums and fees by 7–9%, loss ratio is estimated at 62–68% due to improved underwriting.

Premiums and fees at Individual Life is projected to increase in the range of 3–6%.

Operating losses at Corporate and Other is expected in the band of $200–$225 million in 2017.

Principal Financial estimates the tax rate to be approximately 21–23%.

Over the past few years, the company has set aside capital for deployment in either strategic acquisitions or for enhancing shareholders’ value. In 2017, the company intends to utilize $0.8–$1.1 billion for quarterly dividends, strategic acquisitions and share buybacks as well as to deleverage its balance sheet. For 2016, management expects to deploy capital on the higher end of the $0.8–$1 billion guided range, of which it has already deployed $768 million. Management intends to use 65–70% of the net income for capital deployment over the long term.

Principal Financial expects shares outstanding at year-end 2017 of 288–292 million.

Notably, Principal Financial has aligned itself to focus more on the strategic opportunities in the growing asset accumulation and asset management businesses. Also, it is well positioned on the back of its extensive distribution footprint, best-in-class solutions and operational discipline. Deeper focus on fee-based revenue sources has been helping the company earn steadily and limit exposure to the adverse interest rate environment. We believe that these attributes will help it to meet its expectations going forward.

Year to date, the Principal Financial stock has gained 32.1%, surpassing the 3.9% growth for the Zacks categorized Investment Management industry. This price outperformance was supported by upward estimate revisions. Principal Financial presently carries a Zacks Rank #3 (Hold).
 

Stocks to Consider

Some better-ranked insurers are Alleghany Corporation , First American Financial Corporation (FAF - Free Report) and Arch Capital Group Ltd. (ACGL - Free Report) . Each of these stocks sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Alleghany Corporation deals with property & casualty reinsurance and insurance businesses in the U.S. and internationally. The company delivered positive surprises in three of the last four quarters, with an average beat of 20.52%.

First American Financial is a leading provider of title insurance and settlement services to the real estate and mortgage industries in the U.S. It outpaced estimates in all the trailing four quarters with an average beat of 14.32%.

Arch Capital offers property, casualty, and mortgage insurance and reinsurance products worldwide. It delivered positive surprises in all of the last four quarters, with an average beat of 9.27%.

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