Principal Financial Group Inc. PFG announced its projections for 2016 and divulged its capital deployment plans. Shares lost about 5.1% in the last trading session to finally close at $48.20 yesterday.
Principal Financial estimates net revenue growth in the range of 2–4% at Retirement and Income Solutions – Fees and 8–10% at Retirement and Income Solutions – Spread.
Net revenue is estimated to increase in the range of 8–10% at Principal Global Investors. The pretax return on revenues estimate is 33–36%. While management expects the merger of Principal Global Investors and Principal Funds to create synergies over time, a sustained strong investment performance and product development will drive growth.
Principal International is expected to deliver net revenue growth between 8% and 10% in 2015. Management expects strengthening of the U.S. dollar to limit the desired revenue growth.
While solid sales and retention as well as employment recovery will drive Specialty Benefits premium and fees by 6–8%, loss ratio is estimated at 64–70% on improved underwriting.
Premium and fees at Individual Life in projected to increase in the range of 3–5%, margins are expected to remain strong on the shift to more fee-based products and in-line mortality.
Operating losses at Corporate and Other in 2016 is expected in the band of $235–$265 million.
Principal Financial estimates the tax rate at approximately 20–22%.
Over the past few years, the company has set aside capital for deployment in either strategic acquisitions or for enhancing shareholders’ value. In 2015, the company intends to utilize $0.8–$1 billion for quarterly dividends, strategic acquisitions and share buybacks as well as to deleverage its balance sheet. For 2015, management expects to deploy on the higher end of the $0.8–$1 billion guided range of which it has already deployed $855 million.
Principal Financial expects shares outstanding at 2016-end to be 295–298 million.
Notably, Principal Financial is aligning itself to focus more on the strategic opportunities in the growing asset accumulation and asset management businesses. Also, it is well positioned on the back of its extensive distribution footprint, best-in-class solutions and operational discipline. Deeper focus on fee-based revenue sources has been helping the company earn steadily and limit exposure to the interest rate environment. We believe that these attributes will help it to meet its expectations going forward.
Principal Financial presently carries a Zacks Rank #4 (Sell). Some better-ranked stocks in the finance space are Arbor Realty Trust Inc. ABR, Woori Bank Co., Ltd. WF and Man Group plc MNGPY. Each of these stocks carries a Zacks Rank #2 (Buy).
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