Principal Financial Group Inc. (PFG) continues to post solid growth in assets under management. Also, the company continues to effectively deploy $700 million of capital. Moreover, Principal Financial scores strongly with the credit rating agency.
However, volatility in the financial markets and Principal’s investment portfolio exposure to commercial real estate are partial offsets to the positives.
Thus we remain Neutral on the company.
Principal posted 12% growth in assets under management in the first quarter, driven by improved results at three asset management and asset accumulation segments. The company is positioned to continue delivering solid operating results on the back of its extensive distribution footprint, best-in-class solutions and operational discipline.
As a part of deploying $700 million capital, Principal acquired the majority shares in Finisterre Capital LLP, and Finisterre Holdings Limited. The acquisition will help Principal add to its emerging market investment capabilities through the launch of new emerging market products and strategies in a broadened platform. Also, Principal Financial Group, S.A. de C.V., has agreed to acquire HSBC AFORE, S.A. de C.V. (HAFO), enhancing its presence in Mexico
Fitch Ratings upgraded the rating outlook to stable from negative on Principal Financial Group and its subsidiaries based on the improved investment position. The rating agency also affirmed the 'AA-' financial strength ratings on the company's primary life insurance company subsidiaries and the 'A-' rating on its holding company senior debt rating.
On the flip side, the volatility in the financial markets is expected to continue, a situation that may cap the upward potential of the share price in the near-to-medium term.
Principal’s investment portfolio has a high exposure to commercial real estate, the increasing delinquency rate and defaults under its commercial mortgage loan portfolio, which will keep the company’s financial strength and profitability under pressure.
Principal Financial reported first quarter operating earnings of 71 cents per share, modestly surpassing the Zacks Consensus Estimate by a penny. Results were ahead of 69 cents per share earned in the prior-year quarter. Principal Financial delivered a strong quarter on the heels of double-digit earnings growth from Principal Global Investors, Principal Funds, Individual Annuities and U.S. Insurance Solutions.
No analysts covering the stock have raised their estimates for the second quarter of 2011 over the past 30 days. However, one out of 17 analysts covering the stock lowered their estimates over the past 7-day and 30-day time periods.
For 2011, one out of 18 analysts raised their estimates over the last 7 days while 1 analyst tweaked the estimates downward over last 7 days and 30 days. For 2012, one out of 17 analysts nudged the estimate downward over the last month.
The quantitative Zacks #3 Rank (short-term Hold rating) for the company indicates no clear directional pressure on the shares over the near term.
Based in Des Moines, Iowa, Principal Financial Group Inc. provides an expansive range of retirement savings, investment and insurance products and services through its various subsidiaries. It competes with Lincoln National Corporation (LNC).
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