Principal Guides, Approves Buyback

Principal Financial Group Inc. (PFG - Analyst Report) guides its 2012 operating earnings in a band of $3.05–$3.25 per share. The Zacks Consensus Estimate for 2012 is $3.17, toward the high end of the company's guidance.

The company also expects an average S&P 500 Index of 1,275 in 2012, driving an 8%–10% year-over-year increase in average assets under management in 2012. It still expects operating losses of $120 to $130 million at the Corporate segment in 2012. Also, the company estimates operating earnings to plunge by $35–45 million due to implementation of new deferred acquisition costs from January 1, 2012.

The guidance includes about $800 to $900 million of total capital utilized in dividend payments, strategic acquisitions and share buybacks. Principal Financial estimates weighted average number of common shares outstanding at around 300–305 million for full year 2011.

Also, in a separate development, the board of directors of the company authorized $100 million worth of share buyback. The authorization is part of the company’s strategy to deploy $1 billion in either returning value to shareholders or in merger and acquisitions. With this authorization year to date acquisitions and share buybacks total $900 million.

This authorization is also in addition to $450 million worth of stock that the company has already bought back till date.

The new authorization not only further establishes Principal’s continued focus on enhancing shareholders value but also on the inherent strength of its liquidity. The cash balance of Principal at third quarter end totaled $1.4 billion and year to date cash from operation totaled $1.9 billion.

The share price of Principal Financial increased 7.9% to close at $24.13 as on Wednesday.  It is likely possible that a better outlook and a new share repurchase authorization have boosted investor confidence in the stock, pushing it to trade at a higher price.

There was no earnings momentum on the stock over the last 7 days. These new developments at the company’s front might encourage analysts to pull their estimates upward. The Zacks Consensus Estimate for fourth-quarter 2011 and full year 2011 are respectively 74 cents per share and $2.81 per share.

We retain our Neutral recommendation on Principal Financial. The quantitative Zacks #3 Rank (short-term Hold rating) for the company indicates no clear directional pressure on the stock over the near term.

Based in Des Moines, Iowa, Principal Financial Group Inc. provides an expansive range of retirement savings, investment and insurance products and services through its various subsidiaries. It competes with Lincoln National Corporation (LNC - Analyst Report).

Read the full analyst report on LNC

Read the full analyst report on PFG