On Mar 2, 2016, we issued an updated research report on Principal Financial Group Inc.PFG .
With respect to quarterly results, Principal Financial's fourth-quarter 2015 earnings missed the Zacks Consensus Estimate and also decreased year over year owing to a decline in the top line. Nonetheless, this Zacks Rank #3 (Hold) investment management company delivered positive earnings surprise in two of the last four quarters with an average beat of 1.21%.
Principal Financial remains well poised for earnings growth amid low interest rate environment on the back of fee-based revenue sources. The company's Asset Under Management (AUM) have been steadily increasing on better results at three asset management and asset accumulation segments. The company witnessed a record AUM growth of $527.4 billion in 2015, up 2.2%. Strong cash flows, which doubled year over year, drove the upside. Principal Financial envisions $1 trillion in AUM over five to seven years on the back of various growth drivers and leadership position.
Moreover, the company's inorganic story remains impressive. Several prudent acquisitions have added to the company's fee-based businesses and expanded its global footprint.
Principal Financial's capital deployment through share buybacks and dividend payments looks impressive, thereby making it an attractive pick for yield-seeking investors. Last month, the company approved a new share buyback program worth $400 million to return more value to its shareholders. The company expects capital deployment of about $0.8 billion to $1 billion in 2016 (in quarterly dividends, strategic acquisitions and share buybacks). Over the long term, the insurer intends to spend 65-70% of its net income on such activities.
However, exposure to a low interest rate environment continues to weigh on the investment results. Moreover, the company has been witnessing mounting debt levels, resulting in higher interest payment as well as high leverage ratios. Additionally, lower-than-expected earnings accretion from the acquisitions might weigh on overall results.
Stocks to Consider
Some better-ranked stocks from the same sector include GAMCO Investors, Inc. GBL , Prospect Capital Corporation PSEC and Chubb Limited CB . While GAMCO Investors and Chubb Limited sport a Zacks Rank #1 (Strong Buy), Prospect Capital holds a Zacks Rank #2 (Buy).
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.