Principal Financial Group Inc. ( PFG ) is
aligning its business in order to focus more on growing asset
accumulation and asset management businesses. It also remains on
track to deploy $800-900 million in 2012, in either returning value
to shareholders or in merger and acquisitions.
However, the low interest rate environment continues to remain a
drag. We thus retain our Neutral recommendation on the
To enhance focus on the strategic opportunities in the growing
asset accumulation and asset management businesses, it exited the
medical insurance segment. This business has been on a declining
trend over the past several years. Principal Financial's assets
under management grew 9% year over year to $367.1 billion as of
June 30, 2012, driven by better results at three asset management
and asset accumulation segments.
The company intended to deploy $800-900 million in 2012, in either
returning value to shareholders or in merger and acquisitions. As
such, its Board approved a $200 million share buyback program in
May and hiked dividend by 17% in August. It has nearly $400 million
left to be utilized.
Also, increased focus on fee based business enables the company
to return more earnings to shareholders. Principal has a dividend
yield of 3.1%, higher than the industry yield of 1.5% and way above
that of its nearest peer, Lincoln National Corp. (
), with a yield of 1.3%. Nevertheless, the company intends to
lower the excess capital by $300-$400 million over the next few
LINCOLN NATL-IN (LNC): Free Stock Analysis
PRINCIPAL FINL (PFG): Free Stock Analysis
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Additionally, the company scores strongly with the rating
agencies. Rating affirmations or upgrades from credit rating
agencies play an important part in retaining investors' confidence
in the stock as well as maintaining creditworthiness in the
On the flip side, low interest rate continues to weigh on the
results. Net investment income, in the second quarter experienced
lower net investment income largely attributable to lower
investment yields in U.S. operations and lower inflation-based
investment returns on average invested assets and cash resulting
from lower inflation in Chile.
Furthermore, Principal Financial adopted deferred acquisition cost
guidance starting 2012. It estimated the adoption to lower 2012
operating earnings by $35 to $45 million.
Principal Financial currently holds a Zacks Rank #4 (Sell),
indicating slight downward pressure on the stock in the near