We have retained our Neutral recommendation on
Principal Financial Group Inc
) as the low interest rate environment and rising expenses might
weigh on the company's performance. The investment manager
currently carries a Zacks Rank #3 (Hold).
Principal Financial's businesses across most lines and segments
continue to deliver solid results. The company's asset under
management (AUM) portrays an uptrend driven by better results at
three asset management and asset accumulation segments. We expect
that the company's extensive distribution footprint,
best-in-class solutions and operational discipline will help it
support AUM growth going forward.
Principal Financial also follows an inorganic route to ramp up
its growth profile. Management intends to utilize a significant
portion of its operating earnings for mergers and acquisitions.
Principal Financial's capital deployment through share buybacks
and dividend payment looks impressive, making it an attractive
pick for yield-seeking investors. Management has set aside
$400-$600 million for quarterly dividends, share buybacks and
acquisitions in 2013, with share repurchases slated for the
latter half of the year.
On a tepid side, low interest rates continue to weigh on the
results of Principal Financial. Net investment income has been
showing a declining trend in the recent years, partly due to
lower yields on average invested assets. We are also concerned
about the company's increasing debt.
A surge in fees and other revenues along with an increase in
asset under management aided Principal Financial to deliver
operating earnings of 79 cents per share in the last reported
quarter. Operating earnings exceeded the Zacks Consensus Estimate
by 5.33% and improved 11.3% year over year. In addition, a lower
share count buoyed the bottom line. The Zacks Consensus Estimate
for the second quarter is pegged at 82 cents, translating to a
year-over-year improvement of 14.5%
Other Stocks to Consider
We prefer to remain on the sidelines for Principal Financial.
SEI Investments Co.
) with Zacks Rank #1 (Strong Buy) looks attractive. Among other
Ameriprise Financial, Inc
Artisan Partners Asset Management Inc
) both with a Zacks Rank #2 (Buy), are also worth considering.
AMERIPRISE FINL (AMP): Free Stock Analysis
ARTISAN PTNR AM (APAM): Free Stock Analysis
PRINCIPAL FINL (PFG): Free Stock Analysis
SEI INVESTMENTS (SEIC): Free Stock Analysis
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