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Principal Financial (PFG) Unveils 2022 View, Capital Plan

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Principal Financial Group (PFG - Free Report) unveiled guidance and its capital deployment plan for 2022. PFG expects to grow its operating earnings per share at a rate of 10-13%. The investment manager, which inked reinsurance transactions for in-force U.S. retail fixed annuity and universal life insurance with secondary guarantee blocks of business this January, expects to generate deployable proceeds of $800 million. The guidance includes the impact of this transaction as well as other transactions to improve capital efficiency.

The Zacks Consensus Estimate for 2022 earnings is currently pegged at $6.89 per share, indicating year-over-year growth of 1.8%.

Principal Financial estimates about 0.3 million COVID-related deaths in 2022 and thus $15-$20 million after-tax loss impact for every 0.1 million U.S. COVID mortality. Specialty Benefits and Individual Life will absorb $20 million pretax and $15 million pretax loss, respectively. However, a pretax benefit of $10 million in RIS-Spread will be a partial offset.

With respect to the segment outlook, net revenues at RIS-Fee are expected to be $2.1 billion, up 3% to 6% while at RIS-Spread is estimated to be $685 million, down 20-25%.

Operating revenues less pass-through expenses at Principal Global Investors are expected to be $1.7 billion, up 2-6%. Combined net revenues at Principal International are projected to be $963 million, down 2% to up 2%. Premium and fees at Specialty Benefits are estimated to be $2.5 billion, up 6-10%. Premium and fees at Individual Life is estimated to be $1.3 billion, down 23-27%. The loss ratio at Specialty Benefits is estimated between 60% and 64%.

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.

PFG expects the Corporate segment to incur about $370 to $400 million pre-tax operating losses in 2022.

Principal Financial boasts a strong capital position, with sufficient cash generation capabilities and liquidity. This Zacks Rank #3 (Hold) investment manager exited 2021 with $2.6 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 the investment manager returned $1.6 billion in capital to its shareholders.

Principal Financial thus estimates returning $2.5-$3 billion of capital to shareholders in 2022, consisting of $2-$2.3 billion in share repurchases and a 40% dividend payout ratio. Average shares outstanding are estimated between 248 million and 256 million.

Principal Financial continues to target a 40% dividend payout ratio. With 14 straight years of dividend increases, PFG also boasts a solid dividend yield of 3.7%, higher than the industry average of 2.7%.

Focus on fee-based revenue sources, improving assets under management, and its spread and risk businesses have been helping Principal Financial earn steadily, besides limiting exposure to the low interest rate. The investment manager stated that it remains well poised to achieve its financial targets for 2023, given solid organic growth in businesses. Shares of Principal Financial have lost 4.1%, narrower than the industry’s decrease of 18.5% year to date.

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Stocks to Consider

Some better-ranked investment managers include Ares Management (ARES - Free Report) , Ameriprise Financial (AMP - Free Report) and Blue Owl Capital (OWL - Free Report) .

The Zacks Consensus Estimate for Ares Management’s 2022 earnings of $3.30 per share indicates a year-over-year increase of 28.4%. The consensus estimate has moved up 3.5% in the past 30 days. The expected long-term earnings growth rate for ARES, sporting a Zacks Rank #1 (Strong Buy), is pegged at 26.8%. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Ameriprise’s 2022 earnings of $25.93 per share indicates a year-over-year increase of about 14%. The consensus estimate has moved up 0.8% in the past 30 days. AMP, carrying Zacks Rank #2 (Buy), delivered a four-quarter average earnings surprise of 7.60%.

The Zacks Consensus Estimate for Blue Owl Capital’s 2022 earnings has moved 22.6% higher in the past 30 days. The expected long-term earnings growth rate for OWL, carrying a Zacks Rank #2, is 40.1%.

Shares of ARES have gained 1.2% year to date while that of AMP and OWL have lost 3.9% and 14.9%, respectively, in the same time frame.