On Dec 29, we issued an updated research report on Principal Financial Group Inc. (PFG).
Principal Financial is aligning itself to focus more on its strategic opportunities (both organic and inorganic) in the growing asset accumulation and asset management businesses. Asset under management (AUM) shows a steadily increasing trend courtesy of better results at three asset management and asset accumulation segments.
The company foresees $1 trillion in AUM in five to seven years on the strength of various growth drivers and its leadership position.
Principal Financial has also intensified its focus on fee-based revenue sources that is leading to steady earnings besides limiting exposure to the interest rate environment. The company foresees 70% of its revenues coming from such sources 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 has raised its 2014 capital deployment target to $855 million, from $500–$700 million set aside initially. For 2015, the company intends to utilize $0.8–$1 billion.
However, a soft interest rate environment continues to weigh on investment results. Escalating expense also remains a cause of concern. In addition, cash balance continues to decline.
Principal Financial reported solid third-quarter results with operating earnings surpassing the Zacks Consensus Estimate and year-ago earnings. The outperformance came on the back of a deeper focus on fee-based sources that offset the increase in expenses.
With respect to earnings performance, this Zacks Rank #3 (Hold) investment manager has delivered a positive surprise in the last four quarters with an average beat of 9.41%. The expected long-term earnings growth rate for the stock is 11.3%.
Stocks to Consider
Better-ranked investment managers include Monroe Capital Corp. (MRCC), Ameriprise Financial, Inc. (AMP) and BlackRock, Inc. (BLK). While Monroe Capital sports a Zacks Rank #1 (Strong Buy), Ameriprise and BlackRock carry a Zacks Rank #2 (Buy).
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