Principal Financial Group, Inc. PFG has been in investors' good books on the back of higher sales of whole life and term life insurance policies, higher assets under management, solid capital position, and prudent capital deployment.
The stock has a VGM Score of B. VGM Score helps to identify stocks with the most attractive value, best growth and the most promising momentum.
The stock has seen its estimates for 2020 move up nearly 0.4% in the past 30 days and the same for 2021 move up nearly 5.5% in the past 60 days, reflecting investor optimism.
The Zacks Consensus Estimate for 2021 earnings per share is pegged at $6.18, indicating year-over-year increase of nearly 13.1%.
The company delivered earnings surprise of 11.4% in the last reported quarter.
Factors Driving Principal Financial
Principal Financial continues to benefit from higher revenues driven by increased premiums and other considerations, fees and other revenues and higher net investment income Revenues increased at a five-year (2014-2019) CAGR of 9.1%. The Zacks Consensus Estimate for the company’s 2021 revenues is pegged at $16.9 billion, indicating an increase of 8.7% from the year-ago reported figure. We believe higher sales of whole life and term life insurance policies, immediate annuities with life contingencies, higher average invested assets and acquired business are likely to drive revenues.
Strong revenues have been aiding margin expansion. In the second quarter, net margin expanded 40 basis points sequentially.
The company has been witnessing growth in assets under management (AUM) on the back of improved fixed income, real estate and other alternative investment performance. AUM is the base through which the company generates management fee revenues and is driven by positive market returns. Strategic acquisitions, operational discipline and extensive distribution footprint of the company are expected to drive AUM.
Moreover, the company pursues strategic mergers and acquisitions in a bid to grow inorganically. The buyout of Wells Fargo Institutional Retirement and Trust businesses in July 2019 is expected to generate $425 million of run-rate revenues once fully integrated in 2022. The acquisition enhanced its offerings and ability to serve customers with unmatched capabilities across retirement, asset management and protection solutions.
In 2018, it acquired INTERNOS, which increased its AUM by $3.5 billion. Also, the acquisition of MetLife's Afore business increased its AUM by $3.8 billion. These acquisitions have enabled the company to expand its global footprint. The company anticipates that acquisition and investment activities may increase the number and magnitude of their investments in the future.
Principal Financial’s improved liquidity position has led to a strong balance sheet. Though the company’s current debt increased 11.5% as of Jun 30, 2020 from 2019-end level, its cash and cash equivalents of $3.7 million along with access to revolving credit facilities of $800 million suggests that the company has sufficient cash reserves to meet its short-term debt obligations. Moreover, its total debt to total capital of 21.7% lies below the industry’s average of 33.6%.
Furthermore, investors should be impressed by its disciplined capital management. The company has increased its dividend at a six-year (2014-2020) CAGR of 12.3%. Its current dividend yield of 5.2% is higher than the industry average of 3.1%, which makes the stock an attractive pick for yield-seeking investors. The company expects capital deployments between $800 million and $1 billion in 2020.
It has a Zacks Rank #2 (Buy) and an impressive Value Score of A. Our research shows that stocks with a Value Style Score of A or B when combined with a Zacks Rank #1 (Strong Buy) or 2 offer the best opportunities in the value investing space.
However, shares of this global investment management company have lost 22.3% year to date compared with the industry’s decline of 1.7%.
Other Stocks to Consider
Investors interested in finance sector may also look at Artisan Partners Asset Management Inc. APAM, KKR & Co. Inc. KKR and Waddell & Reed Financial, Inc. WDR, each carrying a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Artisan Partners is a publicly owned investment manager providing its services to pension and profit-sharing plans, trusts, endowments, foundations, government entities, private funds, as well as mutual funds and collective trusts. The company beat estimates in each of the last four quarters, with the average surprise being 5.97%.
KKR is a private equity and real estate investment firm specializing in direct and fund of fund investments. The company beat estimates in each of the last four quarters, with the average surprise being 6.96%.
Waddell & Reed Financial provides investment management and advisory, investment product underwriting and distribution to mutual funds, and institutional and separately managed accounts in the United States. The company beat estimates in three of the last four quarters, with the average surprise being 11.29%.
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