Why Should You Hold Principal Financial (PFG) in Your Portfolio?
Principal Financial Group, Inc. PFG is well poised for growth, given its improved sales of life insurance policies, effective capital deployment and sufficient liquidity.
Over the past 60 days, the company’s 2022 earnings estimates have moved 3.1% north that reflects investors’ optimism.
Principal Financial continues to witness solid performance across its segments owing to improved premiums, other considerations, fees and other revenues and higher net investment income. Principal International segment revenues increased 2% year over year in 2020, with a 33% margin. Combined net revenues at Principal International are projected to increase 8-12% in 2021.
Furthermore, net revenues at RIS-Fee (Retirement and Income Solution) are expected to grow 3% to 7% while at RIS-Spread it is expected be down 3% to up 3% in 2021.
The Zacks Consensus Estimate for the company’s 2021 and 2022 revenues is pegged at $15.2 billion and $16 billion, indicating a year-over-year increase of 4.6% and 5%, respectively. Given higher sales of whole life and term life insurance policies, immediate annuities with life contingencies and acquired business are likely to drive revenues.
Total company assets under management (the base through which the company generates management fee revenues) surged to a record $807 billion at the end of 2020 owing to positive net cash flow, favorable market performance and the migration of some of the Institutional Retirement & Trust (IRT) retirement business during the fourth quarter. The company achieved record AUM in Mexico, Hong Kong, and Southeast Asia in the fourth quarter of 2020.
Despite the uncertainties that prevailed over the last year, the company was able to maintain its strong financial positions with $2.9 billion of excess and available capital, which include $1.8 billion at the holding company, more than double the target of $800 million to cover the next 12 months of obligations, $620 million in excess of targeted 400% risk-based capital ratio at the end of the year, which was estimated to be 440%, and $460 million of available cash in its subsidiaries. Moreover, at the end of 2020, it had $2.7 billion of total company available cash and liquid assets.
The company remains committed to enhancing shareholder value. Banking on its strong capital position, the company raised its dividend at a seven-year (2014-2021) CAGR of 10.4%. It deployed more than $900 million of capital in 2020. Presently, it has $775 million remaining under its share repurchase authorization. It continues to target 40% dividend payout ratio in 2021. Its current dividend yield of 3.8% is better than the industry average of 3.1%, which makes the stock an attractive pick for yield-seeking investors.
Moreover, shares of this Zacks Rank #3 (Hold) global investment management company have gained 65.7% in the past year, outperforming the industry’s increase of 54.6%.
The Zacks Consensus Estimate for 2021 and 2022 earnings per share is pegged at $6.17 and $6.89, indicating year-over-year increase of nearly 24.9% and 11.7%, respectively. In 2021, the company expects to grow its operating EPS at a rate of 8-10% while reported EPS is estimated to grow between 18% and 20%.
Stocks to Consider
Some better-ranked stocks from the finance sector include Affiliated Managers Group, Inc. AMG, Waddell & Reed Financial, Inc. WDR and Janus Henderson Group plc JHG, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Affiliated Managers Group surpassed estimates in each of the last four quarters, the average beat being 7.40%.
Waddell & Reed Financial surpassed estimates in two of the last four quarters and missed in the other two, the average beat being 3.73%.
Janus Henderson Group surpassed estimates in each of the last four quarters, the average beat being 22.26%.
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