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Reasons Why Investors Should Retain Principal Financial (PFG)

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Principal Financial Group, Inc. (PFG - Free Report) continues to be an investor favorite on the back of its growth in fee-based businesses, foreign currency tailwinds and a positive net cash flow.

Growth Projections

The Zacks Consensus Estimate for 2021 and 2022 earnings per share is pegged at $6.49 and $7.06, indicating an increase of 31.3% and 8.8%, respectively, from the corresponding year-ago reported figures. The expected long-term earnings growth rate is pegged at 15.2%.

Estimate Revision

The Zacks Consensus Estimate for 2021 and 2022 earnings has moved 3% and 1.6% north, respectively, in the past 60 days. This should instill investors' confidence in the stock.

Zacks Rank & Price Performance

Principal Financial currently carries a Zacks Rank #3 (Hold). The stock has rallied 30.8%, outperforming the industry’s increase of 28.3% year to date.

Zacks Investment Research
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Business Tailwinds

The Principal International segment of Principal Financial expects to deliver 8-12% growth in revenues for 2021 excluding significant variances and the segment’s operating earnings should gain from foreign currency tailwinds.

Principal Financial targets earnings per share growth of 9-12%, which it projects to achieve through a narrowed focus on higher growth and more capital-efficient businesses. Moreover, it expects to generate 70-80% free capital conversion.

With positive net cash flow, strategic buyouts and operational discipline, Principal Financial’s assets under management should continue to benefit.

The investment manager has always emphasized on fee-based businesses and focused on retirement in the United States and the select emerging markets, global asset management, and the U.S. specialty benefits and protection in the small-to-medium-sized business market. These businesses are well poised for long-term growth, capital-efficiency and higher fee-based revenues.

It also continues to maintain a robust financial position with $2.5 billion of excess and available capital that includes $1.7 billion at the holding company, more than double the $800-million target to cover the next 12 months of obligations, $325 million in excess of the targeted 400% risk-based capital ratio, which was estimated to be 421% as well as $460 million of available cash in its subsidiaries.

Moreover, it maintained a leverage ratio of 20-25% and expects to pay down $300 million of long-term debt when it matures in late 2022.

The company hiked its dividend by 13% in the third quarter and currently yields 3.9%, better than the industry average of 2.3%. For 2021, it continues to target a 40% dividend payout ratio.

In June 2021, the board approved a $1.2-billion buyback program and estimates $1.4-1.8 billion of capital deployment including $600-$800 million of share repurchases for the current year. This makes the stock an attractive pick for yield-seeking investors. Also, the impact of credit drift and credit losses is expected to remain insignificant for 2021.

Stocks to Consider

Some better-ranked stocks from the finance sector are Affiliated Managers Group, Inc. (AMG - Free Report) , Apollo Global Management, Inc. (APO - Free Report) and Ares Management Corporation (ARES - Free Report) , each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Earnings of Affiliated Managers surpassed estimates in each of the last four quarters, the average being 8.36%.

Apollo Global’s bottom line surpassed estimates in three of the last four quarters, missing the mark in the remaining one, the average beat being 23.57%.

Ares Management’s earnings surpassed estimates in three of the last four quarters, missing the same in the remaining one, the average beat being 13.12%.