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Principal Financial (PFG) Provides 2021 View, Capital Plan

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Principal Financial Group (PFG - Free Report) unveiled guidance and its capital deployment plan for 2021. The company expects to grow its operating EPS at a rate of 8-10% while reported EPS is estimated to grow between 18% and 20%.

The Zacks Consensus Estimate for 2021 EPS is currently pegged at $6.23, indicating year-over-year growth of 26.1%, much above the company’s guided range.

Principal Financial estimates about 0.3 million COVID-related deaths in 2021, heavily weighted to the first quarter. Thus, it projects about $30 million impact on its full-year non-GAAP operating earnings from the direct mortality and morbidity. Specialty Benefits and Individual Life will absorb $40 million pretax and $30 million pretax loss, respectively. However, a pretax benefit of $30 million in RIS-Spread will be a partial offset.

With respect to segment outlook, net revenues at RIS-Fee are expected to grow 3% to 7% while at RIS-Spread it is expected to grow negative 3 to positive 3%.

Operating revenues less pass-through expenses at Principal Global Investors are expected to grow 9-13%. Combined net revenues at Principal International are projected to increase 8-12%. Premium and fees at Specialty Benefits as well as Individual Life is estimated to improve 3-7% each. Loss ratio at Specialty Benefits is estimated between 60% and 65%.

Principal Financial should continue to benefit from its strength and leadership in retirement and long-term savings, group benefits and protection in the United States, retirement and long-term savings in Latin America and Asia plus global asset management. Continued growth in fee, spread and risk businesses will provide additional upside.

The company expects Corporate segment to incur about $330 to $350 million pre-tax operating losses in 2021.

Principal Financial boasts a strong capital position, with sufficient cash generation capabilities and liquidity. This Zacks Rank #3 (Hold) investment manager exited 2020 with $2.98 billion of excess and available capital. This in turn helps it engage in capital deployment through share buybacks and dividend payment, making it an attractive pick for yield-seeking investors. In 2021 too, the company expects to deploy $1.4 to $1.8 billion in capital. Of this, the company intends to utilize $600- $800 million in buying back shares. Number of shares outstanding at 2021 end is thus expected between 271 and 274 million. With resumption of share buybacks in the fourth quarter of 2020, the company paid back $907 million capital to its shareholders in 2020.

Principal Financial continues to target 40% dividend payout ratio.  With the 13th straight year of dividend increases, the company also boasts a solid dividend yield of 3.8%, higher than the industry average of 2.9%.

Focus on fee-based revenue sources, improving assets under management, spread and risk businesses have been helping Principal Financial earn steadily, besides limiting exposure to low interest rate. Shares of Principal Financial have rallied 17.7%, outperforming the industry’s increase of 6.7% in a year.

Stocks to Consider

Some better-ranked investors include Affiliated Managers Group (AMG - Free Report) , Ameriprise Financial (AMP - Free Report) and Invesco Ltd (IVZ - Free Report) , each sporting Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Affiliated Managers delivered 13.14% earnings surprise in the last reported quarter.     

Ameriprise Financial delivered 2.03% earnings surprise in the last reported quarter.     

Invesco delivered 26.32% earnings surprise in the last reported quarter.    

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