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Principal Financial (PFG) Issues 2019 and Long-Term View

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Principal Financial Group Inc. (PFG - Free Report) issued projections for 2019 and the long term. It also announced its capital deployment plans.

Principal Financial estimates net revenue growth in the range of (2)%-2% at Retirement and Income Solutions – Fees and 5-10% at Retirement and Income Solutions – Spread.

Revenues are estimated to increase 1-5% at Principal Global Investors. The pre-tax return on revenue estimates is likely to be in the range of 34-38%.

Principal International is expected to deliver net revenue growth between 5% and 9% in 2019.

While solid sales and retention as well as employment recovery will drive Specialty Benefits premiums and fees by 7-9%, loss ratio is estimated to be 60-66% on improved underwriting.

Premiums and fees at Individual Life are projected to increase in the band of 4-8%.

Operating losses at Corporate and Other are likely to be in the band of $300-$320 million in 2019.

Principal Financial anticipates tax rate to be approximately 16-20%.

Concurrently, the company unveiled its long-term outlook. Net revenue growth is estimated between 1% and 5% at Retirement and Income Solutions – Fees and between 5% and10% at Retirement and Income Solutions – Spread.

Revenues are estimated to increase 4-7% at Principal Global Investors and between 11% and 14% at Principal International.

Specialty Benefits premiums and fees are expected to improve 7-9%, while that of Individual Life is expected to increase 4-8%.

Over the past few years, the company has set aside capital for deployment in either strategic acquisitions or for enhancing shareholders’ value. In 2019, the company intends to utilize $1-$1.4 billion for quarterly dividends, strategic acquisitions and share buybacks as well as to deleverage its balance sheet. This is above the expected capital deployment of $0.9-$1.3 billion for 2018. Last month, the board of directors approved a share buyback program authorizing the company to repurchase $500 million worth shares. Management intends to use 65-70% of net income for capital deployment over the long term.

Principal Financial expects shares outstanding of 280-282 million at year-end 2019, down from 290-292 million estimated for 2018. Continued buybacks are aiding lower share count.

The company intends to focus more on strategic opportunities in the growing asset accumulation and asset management businesses. Also, it is well positioned on the back of an extensive distribution footprint, best-in-class solutions and operational discipline. Deeper focus on fee-based revenue sources has been helping the company earn steadily and limit exposure to an adverse interest rate environment. We believe that these attributes will help it meet its expectations going forward.

Year to date, Principal Financial stock has lost 31.6% compared with the industry’s decrease of 19.8%. The company has not witnessed any earnings estimate revisions for 2018 in the past 30 days, while the Zacks Consensus Estimate for 2019 moved north by a cent over the same time frame. With the encouraging guidance instilling confidence in the company’s operational performance, we expect analysts to raise their estimates.


Principal Financial currently carries a Zacks Rank #3 (Hold).

Stocks to Consider

Some better-ranked investment managers are Capital Southwest Corporation (CSWC - Free Report) , Prospect Capital Corporation (PSEC - Free Report) and KKR & Co. L.P. (KKR - Free Report) .

Capital Southwest is a business development company specializing in credit and private equity and venture capital investment. The company delivered a four-quarter average beat of 10.20%. The stock sports Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Prospect Capital Corporation is a business development company. It specializes in middle market, mature, mezzanine finance, later stage, emerging growth among others. The company pulled off a four-quarter average positive surprise of 9.05%. The stock sports a Zacks Rank #1

KKR & Co. L.P. is a private equity and real estate investment firm specializing in direct and fund of fund investments. The company came up with a four-quarter average positive surprise of 32.70%. The stock carries a Zacks Rank #2.

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