Back to top

Analyst Blog

Zacks Equity Research

Principal Financial Remains Neutral

PFG LNC

 ZacksTrade Now

This page is temporarily not available.  Please check later as it should be available shortly. If you have any questions, please email customer support at support@zacks.com or call 800-767-3771 ext.  9339.

Principal Financial Group Inc. (PFG - Analyst Report) is aligning its business in order to focus more on growing asset accumulation and asset management businesses. It also remains on track to deploy $800–900 million in 2012, in either returning value to shareholders or in merger and acquisitions.

However, the low interest rate environment continues to remain a drag. We thus retain our Neutral recommendation on the company.

To enhance focus on the strategic opportunities in the growing asset accumulation and asset management businesses, it exited the medical insurance segment. This business has been on a declining trend over the past several years. Principal Financial’s assets under management grew 9% year over year to $367.1 billion as of June 30, 2012, driven by better results at three asset management and asset accumulation segments.

The company intended to deploy $800–900 million in 2012, in either returning value to shareholders or in merger and acquisitions. As such, its Board approved a $200 million share buyback program in May and hiked dividend by 17% in August. It has nearly $400 million left to be utilized. 

Also, increased focus on fee based business enables the company to return more earnings to shareholders. Principal has a dividend yield of 3.1%, higher than the industry yield of 1.5% and way above that of its nearest peer, Lincoln National Corp. (LNC - Analyst Report), with a yield of 1.3%.  Nevertheless, the company intends to lower the excess capital by $300–$400 million over the next few years.

Additionally, the company scores strongly with the rating agencies. Rating affirmations or upgrades from credit rating agencies play an important part in retaining investors’ confidence in the stock as well as maintaining creditworthiness in the market.

On the flip side, low interest rate continues to weigh on the results. Net investment income, in the second quarter experienced lower net investment income largely attributable to lower investment yields in U.S. operations and lower inflation-based investment returns on average invested assets and cash resulting from lower inflation in Chile.

Furthermore, Principal Financial adopted deferred acquisition cost guidance starting 2012. It estimated the adoption to lower 2012 operating earnings by $35 to $45 million.

Principal Financial currently holds a Zacks Rank #4 (Sell), indicating slight downward pressure on the stock in the near term.

Please login to Zacks.com or register to post a comment.

New to Zacks?

Start Here

Zacks Investment Research

Close

Are you a new Zacks Member or a visitor to Zacks.com?

Top Zacks Features

Learn more

Start for as little as $4.50 per trade.

My Portfolio Tracker

Is it Time to Sell?

One of the most important steps you can take today is to set up your portfolio tracker on Zacks.com. Once you do, you'll be notified of major events affecting your stocks and/or funds with daily email alerts.

More Zacks Resources

Zacks Rank Home - Evaluate your stocks and use the Zacks Rank to eliminate the losers and keep the winners.

Mutual Fund Rank Home - Evaluate your funds with the Mutual Fund Rank for both your personal and retirement funds.

Stock/Mutual Fund Screening - Find better stocks and mutual funds. The ones most likely to beat the market and provide a positive return.

My Portfolio - Track your Portfolio and find out where your stocks/mutual funds stack up with the Zacks Rank.

Zacks #1 Rank Top Movers for Zacks #1 Rank Top Movers

Company Symbol Price %Chg
LAKE SHORE G LSG 0.77 +6.05%
QUESTCOR PHA QCOR 80.07 +2.47%
VIPSHOP HOLD VIPS 156.35 +1.82%
ENLINK MIDST ENLC 36.29 +1.60%
BNC BANCORP BNCN 17.33 +1.58%