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Principal Financial Well Poised for Growth on Core Strength

On Sep 14, 2015, we issued an updated research report on Principal Financial Group Inc.PFG .

Principal Financial's inorganic growth story looks attractive with the prudent acquisitions it undertakes. Its latest endeavor was adding AXA's Mandatory Provident Fund ("MPF") and the Occupational Retirement Schemes Ordinance pension business in Hong Kong. The acquisition will position Principal Financial as the fifth-largest MPF provider in that market. The buyout also more than doubled the asset under management (AUM) of the investment manager's Hong Kong pension business to over US $6 billion.

The company's AUM has been steadily increasing on the back of better results at three asset management and asset accumulation segments.

In addition, a deeper focus on fee-based revenue sources (expected to account for 70% by 2018) have been helping Principal Financial to earn steadily, apart from limiting exposure to the interest rate environment. Also, its annuity and insurance business offer steady earnings.

Riding on the strength of solid operational performance, Principal Financial plans capital deployment on the upper end of $0.8-$1 billion in 2015 as it has already exhausted $800 million in the first half.

However, a sustained low interest rate environment, increasing debt levels and high leverage ratios raise concern.

In the last reported quarter, Principal Financial delivered operating net earnings that surpassed the Zacks Consensus Estimate and improved year over year. With respect to the surprise trend, this Zacks Rank #3 (Hold) investment manager delivered positive surprises in the last four quarters, with an average of 6.42%.

The Zacks Consensus Estimate is currently pegged at $4.40 for 2015 and $4.73 for 2016, gaining 1% and 0.2%, respectively, in the last 60 days. The expected long-term earnings growth is currently pegged at 11.3%.

Stocks to Consider

Some better-ranked investment managers are Lazard Ltd. LAZ , Monroe Capital Corporation MRCC and Silvercrest Asset Management Group Inc. SAMG . Each of these stocks carries a Zacks Rank #2 (Buy).

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Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

PRINCIPAL FINL (PFG): Free Stock Analysis Report

LAZARD LTD (LAZ): Free Stock Analysis Report

SILVERCREST AM (SAMG): Free Stock Analysis Report

MONROE CAPITAL (MRCC): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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