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Principal Financial (PFG) Up 8.5% Since Last Earnings Report: Can It Continue?

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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 8.5% 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 the most recent earnings report in order to get a better handle on the important catalysts.

Principal Financial  Q2 Earnings Beat, Revenues Miss

Principal Financial Group, Inc.’s second-quarter 2021 operating net income of $1.70 per share beat the Zacks Consensus Estimate by 11.1%. Moreover, the bottom line increased 16.4% year over year.

Principal Financial witnessed higher revenues across its business lines and higher assets under management (AUM) offset by higher expenses.

Behind the Headlines

Operating revenues increased 13.6% year over year to nearly $3.6 billion, primarily due to lower premiums and other considerations, fees and other revenues and net investment income. However, the top line missed the Zacks Consensus Estimate by nearly 2.3%.

Total expenses increased 18.8% year over year to $3.1 billion due to higher benefits, claims and settlement expenses as well as increased operating expenses.

Principal Financial’s AUM as of Jun 30, 2021 was $990.4 billion, up 41.1% year over year.

Segment Update

Retirement and Income Solution: Revenues increased 12.9% year over year to about $1.7 billion driven by higher premiums and other considerations, fees and other revenues and net investment income.

Pretax operating earnings increased 30.9% year over year to $280.2 million on account of solid performance at Retirement and Income Solution —Spread business.

Principal Global Investors: Revenues of $453.7 million were up 28.6% from the prior-year quarter driven by higher fees and other revenues and net investment income.

Operating earnings increased 70.1% year over year to $184.4 million primarily due higher operating revenues less pass-through expenses.

Principal International: Revenues increased 10.8% year over year to $306.2 million in the quarter due to higher fees and other revenues and premiums and other considerations.

Operating earnings decreased 50% year over year to $47.7 million due to unfavorable impacts from encaje performance. Further, this quarte witnessed inflation, which was partially offset by favorable variable investment income and favorable foreign currency translation.

U.S. Insurance Solution: Revenues grew 8.6% year over year to $1.2 billion driven by higher premiums and other considerations, fees and other revenues and net investment income.

Operating earnings of $126.6 million decreased 18.3% year over year due to poor performance at the Specialty Benefits Insurance business.

Corporate: Operating loss of $82.7 million was narrower than $84 million loss incurred a year ago.

Financial Update

As of Jun 30, 2021, cash and cash equivalents were $2.4 billion, down 23.3% year over year.

At second-quarter end, debt was $4.3 billion, up 2.8% year over year. As of Jun 30, 2021, book value per share (excluding AOCI other than foreign currency translation adjustment) was $48.68, up 9.5% year over year.

Capital Deployment

The company paid out $165.2 million in dividends and deployed $265.7 million to buy back 4.2 million shares in the quarter under review. The board of directors approved third-quarter dividend of 63 cents per share, up 13% year over year.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

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 F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Principal Financial has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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