On Sep 19, we issued an updated research report on Principal Financial Group Inc. (PFG).
Principal Financial reported solid second-quarter results with operating earnings surpassing the Zacks Consensus Estimate and year-ago earnings. The outperformance came on the back of deeper focus on fee-based businesses along with improved investment income that drove the top line higher, and more than offset the increase in expenses.
With respect to earnings performance, this Zacks Rank #2 (Buy) investment manager has delivered positive surprises in the last four quarters, with an average beat of 7.2%.
On the strength of its performance, the Zacks Consensus Estimate for 2014 and 2015 witnessed upward revisions as most of the estimates moved north in the last 60 days. It increased 2.9% to $4.25 for 2014 and 2% to $4.49 for 2015. The expected long-term growth rate for the stock is 11.7%.
Principal Financial’s heightened focus on fee-based revenue sources is helping it to earn steadily besides limiting exposure to the interest rate environment. The company foresees 70% of its revenues coming from these by 2018.
The fee-based model has also been helping Principal Financial to return more value to shareholders and deploy in growth initiatives. The company now expects capital deployment near the high end or above its target of $500 million to $700 million.
Principal Financial’s AUM shows a steady increase driven by better results at three asset management and asset accumulation segments. AUM grew 15% at second-quarter end and crossed the $0.5 trillion mark driven by solid investment results and sturdy cash flows. Principal Financial envisions $1 trillion in assets under management in five to seven years on the strength of various growth drivers and leadership position.
Though investment income witnessed improvement in the last quarter, given the persistent low interest rate environment, we wait to see its sustainability. In addition, we also wait to see if the company remains successful in deleveraging its balance sheet. Nonetheless, cash balance continues to witness a decline.
Other Stocks to Consider
Investors interested in investment managers may also consider stocks like Ameriprise Financial, Inc. (AMP), BlackRock, Inc. (BLK) and The Blackstone Group L.P. (BX). All these stocks share the same Zacks Rank as Principal Financial.
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