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Principal Financial Group Inc. (PFG - Analyst Report) is set to report fourth quarter and full year 2012 results on Jan 31. In the last quarter, it posted an 8.2% negative surprise. Let’s see how things are shaping up for this announcement.

Factors this Past Quarter

Principal Financial’s investment income is expected to be weighed on by the low interest rate environment. The company had earlier predicted that 2012 operating earnings would be affected by 1%–2%, if the low interest rate environment persists. The impact may increase by 3%–8%, if it persists longer.

Nevertheless, its sound capital position and financial liquidity are supportive of its expansion policies in the emerging markets as they offer ample growth opportunities. Principal Financial remains on track to deploy $800–$900 million in 2012 and expects to spend $400–$600 million in 2013.  It already enhanced its dividend by 17%.

Earnings Whispers?

Our proven model does not conclusively show that Principal Financial is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP (Read: Zacks Earnings ESP: A Better Method) and a Zacks Rank of #1, 2 or 3 for this to happen. This is not the case here as you will see below.

Positive Zacks ESP: That is because the Most Accurate estimate stands at 75 cents while the Zacks Consensus Estimate is lower at 74 cents. That is a difference of +1.35%.

Zacks Rank #5 (Strong Sell): Principal Financial’s Zacks Rank #5 (Strong Sell) lowers the predictive power. However, Zacks Rank #5 when combined with a positive ESP makes surprise prediction difficult. We caution against stocks with Zacks #4 and #5 Ranks (Sell rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Other Stocks to Consider

Here are some other companies you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:  

CNO Financial Group, Inc. (CNO - Analyst Report), Earnings ESP of +4.35% and Zacks Rank #2 (Buy).

Alterra Capital Holdings Limited , Earnings ESP of +6.98 % and Zacks Rank #3 (Hold).

The Hartford Financial Services Group, Inc. (HIG - Analyst Report), Earnings ESP of +16.67% and Zacks Rank #3 (Hold).

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