Principal Financial's Revenues Improve, Macro Risks Remain
On Dec 29, 2015, we issued an updated research report on Principal Financial Group Inc. PFG.
Principal Financial’s heightened focus on fee-based revenues has been a steady driver. Fee-based revenues are estimated to account for 70% of the total revenue by 2018.
The company’s inorganic growth story also remains impressive with prudent acquisitions that helped it to expand geographically as well as boost capabilities.
Principal Financial’s assets under management (AUM) witnessed a steady increase driven by better results at three asset management and asset accumulation segments. Solid cash flows, which doubled year over year, enabled the company to deliver a record AUM of $516.2 billion in the last reported quarter.
Principal Financial boasts an impressive track of capital deployment via share buybacks and dividend payments, which makes it attractive for investors seeking high yields. The focus on fee-based revenues should enable the company to return more to its shareholders. The company expects capital deployment on the higher end of $0.8–$1 billion in 2015 and between $0.8 billion and $1 billion in 2016.
However, exposure to a low interest rate environment will have a negative impact on investment results, thus restricting any substantial improvement. Escalating expenses are also weighing heavily on earnings and margins. Moreover, acquisitions by the company, though successful, have subjected it to increased debt obligation risks.
Also, Principal Financial’s third-quarter 2015 earnings missed the Zacks Consensus Estimate owing to a higher level of expense that offset the revenue improvement. Nonetheless, this Zacks Rank #3 (Hold) investment manager delivered positive surprises in three of the last four quarters, with an average beat of 3.13%.
Stocks to Consider
Some better-ranked invest management companies are Cohen & Steers, Inc. CNS, Federated Investors Inc. FII and Manning & Napier, Inc. MN. While Manning & Napier sports a Zacks Rank #1 (Strong Buy), both Cohen & Steers and Federated Investors hold a Zacks Rank #2 (Buy).
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FEDERATED INVST (FII): Free Stock Analysis Report
PRINCIPAL FINL (PFG): Free Stock Analysis Report
COHEN&STRS INC (CNS): Free Stock Analysis Report
MANNING&NAPIER (MN): Free Stock Analysis Report
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