We are retaining our Neutral recommendation on
Principal Financial Group Inc
) based on its mixed third-quarter 2013 results.
Why the Reiteration?
Principal Financial's third-quarter earnings per share surpassed
the Zacks Consensus Estimate as well as the year-ago number by
3.5% and 22% respectively. Reduction in expenses largely aided
the upside. However, the top line missed on both counts primarily
due to a substantial decline in premiums and other
Counting on the positives, Principal Financial's businesses
across most lines and segments continue to deliver solid results.
The company expects the momentum to continue in 2013 and beyond.
The company's assets under management (AUM) shows a steadily
increasing trend driven by better results at three asset
management and asset accumulation segments. AUM grew 19% year
over year as on Sep 30, 2013.
Going forward, we believe AUM growth will be supported by the
company's extensive distribution footprint, best-in-class
solutions and operational discipline. Principal Financial expects
total AUM to grow at 15% CAGR from $302 billion in second-quarter
2013 to $650 billion in 2018.
This Zacks Rank #2 (Buy) investment management company's
inorganic growth story also looks impressive. Over a span of
three years, Principal Financial has closed seven acquisitions,
adding fee-based businesses and expanding its global footprint.
Additionally, Principal Financial's capital deployment through
share buybacks and dividend payment looks impressive, making it
an attractive pick for yield-seeking investors. With respect to
buyback, in the third quarter, it spent $62 million and has $55
million remaining of the $150 million authorization.
Management has set aside $400-$600 million for quarterly
dividends, share buybacks and acquisitions in 2013, of which $480
million has already been allocated. It also expects to deploy
$500-$700 million for quarterly dividends, strategic acquisitions
and share buybacks as well as deleverage its balance sheet.
Also, its current dividend yield of 2.09% is higher than the
industry yield of 1.38%. Principal Financial announced its
intention to pay out 40% of its operating income as dividend,
going forward. We expect its increased focus on fee-based
revenues to enable it to return more to the shareholders.
BROOKFIELD ASST (BAM): Free Stock Analysis
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PRINCIPAL FINL (PFG): Free Stock Analysis
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On the tepid side, low interest rate environment as well as
increasing debt keeps us cautious.
Other Stocks to Consider
Other investment managers that look attractive at present include
Brookfield Asset Management Inc.
Kohlberg Kravis Roberts & Co. L.P.
Virtus Investment Partners, Inc.
). All these stocks carry a Zacks Rank #1 (Strong Buy).