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Principal Financial (PFG) Up 11.2% 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 11.2% 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 drivers.

Principal Financial Q3 Earnings Beat, Revenues Miss

Principal Financial Group third-quarter 2021 operating net income of $1.69 per share beat the Zacks Consensus Estimate by 6.3%. Also, the bottom line increased 98.8% year over year.

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

Behind the Headlines     

Operating revenues increased 10% year over year to nearly $3.6 billion, primarily due to higher premiums and other considerations, fees and other revenues, and net investment income. The top line however missed the Zacks Consensus Estimate by nearly 9.2%.

Total expenses decreased 1.3% year over year to $2.9 billion due to lower benefits, claims and dividends to policyholders. Principal Financial’s AUM as of Sep 30, 2021 was $981 billion, up 34.1% year over year.

Segment Update

Retirement and Income Solution: Revenues increased 6.6% year over year to about $1.6 billion.

Pretax operating earnings increased 13.5% year over year to $243.2 million on account of the solid performance at Retirement and Income Solution — Fee as well as Spread business.

Principal Global Investors: Revenues of $465.2 million were up 21.5% from the prior-year quarter.

Operating earnings increased 34.9% year over year to $190.1 million, primarily due to higher operating revenues less pass-through expenses, partially offset by higher operating expenses.

Principal International: Revenues increased 45.6% year over year to $328.1 million in the quarter. Operating earnings increased 37.9% year over year to $81 million.

U.S. Insurance Solution: Revenues increased 6.1% year over year to $1.2 billion. Operating earnings were $151.6 million against an operating loss of $134.1 million in the prior-year quarter, primarily due to improved performance at the Specialty Benefits Insurance business and Individual Life Insurance.

Corporate: Operating loss of $97.1 million was wider than $69.7 million loss incurred a year ago, primarily due to higher operating expenses.

Financial Update

As of Sep 30, 2021, cash and cash equivalents were $3.1 billion, down 11.6% year over year. At third-quarter end, debt was $4.3 billion, unchanged year over year.

As of Sep 30, 2021, book value per share (excluding AOCI other than foreign currency translation adjustment) was $48.58, up 3.2% from the 2020-end level.

Capital Deployment

Principal Financial paid out $168.2 million in dividends. The board of directors approved fourth-quarter dividend of 64 cents per share, up 14% year over year.

How Have Estimates Been Moving Since Then?

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

VGM Scores

Currently, Principal Financial has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. Charting a somewhat similar path, 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 B. 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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