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Why Is Principal Financial (PFG) Up 33.7% Since Last Earnings Report?

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It has been about a month since the last earnings report for Principal Financial (PFG - Free Report) . Shares have added about 33.7% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Principal Financial due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Principal Financial Q3 Earnings and Revenues Miss

Principal Financial Group, Inc.’s third-quarter 2020 operating net income of 85 cents per share missed the Zacks Consensus Estimate by 42.2%. Also, the bottom line decreased 30.9% year over year.

Principal Financial witnessed lower revenues across most of its business lines, offset by lower expenses.

Behind the Headlines      

Operating revenues decreased 27.9% year over year to nearly $3.2 billion, primarily due to lower premiums and other considerations, fees and other revenues and net investment income. The top line missed the Zacks Consensus Estimate by nearly 9%.

Total expenses decreased 26.2% year over year to $3 billion due to lower benefits, claims and dividends to policyholders as well as reduced operating expenses.

Principal Financial’s AUM as of Sep 30, 2020 was a record $731.3 billion, up 4% year over year.

Segment Update

Retirement and Income Solution: Revenues decreased 38.6% year over year to about $1.6 billion.

Pretax operating earnings increased 65.6% year over year to $281.1 million on account of solid performance at Retirement and Income Solution — Fee as well as Spread business.

Principal Global Investors: Revenues of $382.8 million were up 3.5% from the prior-year quarter.

Operating earnings increased 14.6% year over year to $140.9 million primarily due to higher operating revenues less pass-through expenses and lower operating expenses.

Principal International: Revenues decreased 44.3% year over year to $225.3 million in the quarter.

Operating earnings decreased 46% year over year to $58.7 million primarily due to foreign currency translation headwinds.

U.S. Insurance Solution: Revenues decreased 5.9% year over year to $1.1 billion.

Operating loss was $134.1 million against operating earnings of $120.1 million in the prior-year quarter, primarily due to poor performance at the Specialty Benefits Insurance business and Individual Life Insurance.

Corporate: Operating loss of $69.7 million was narrower than $102.1 million loss incurred a year ago, primarily due to expense management actions and interest received from a tax settlement.

Financial Update

As of Sep 30, 2020, cash and cash equivalents were $3.6 billion, up 11.2% year over year.

At third-quarter end, debt was $4.3 billion, up 13.7% year over year.

As of Sep 30, 2020, book value per share (excluding AOCI other than foreign currency translation adjustment) was $45.10, up 1.9% year over year.

Capital Deployment

Principal Financial paid out $153.7 million in dividends.

The board of directors approved fourth-quarter dividend of 56 cents per share, up 3% year over year.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month.

VGM Scores

Currently, Principal Financial has a poor Growth Score of F, a grade with the same score on the momentum front. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Principal Financial has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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