Shares of Principal Financial Group, Inc. PFG gained 28.26% year to date, much above the Zacks-categorized Investment Management industry’s 1.77%. This price performance has been backed by positive estimate revision. The company has seen its 2016 and 2017 estimates moving north by more than 1% over the last 60 days.
Why Should You Add In Your Portfolio
Principal Financial’s businesses across most lines and segments continue to deliver solid results. Deeper focus on fee-based revenue sources (about 70% expected from these by 2018) have been helping Principal Financial earn steadily apart from limiting exposure to interest rate environment.
Principal Financial’s assets under management (AUM) shows a steady increase, driven by better results at three asset management and asset accumulation segments. Principal Financial envisions $1 trillion in AUM in five to seven years on the strength of various growth drivers and its leadership position.
Principal Financial has been deploying capital effectively to enhance shareholders’ value. The company expects capital deployment between $800 million and $1 billion in 2016 (in quarterly dividends, strategic acquisitions and share buybacks). Over the long term, Principal Financial intends to spend 65% to 70% of net income in such activities. We expect such endeavors to be well supported by the company’s solid operational performance, and a robust balance sheet with sufficient liquidity and strong cash flows.
Recently, Zacks Investment Research upgraded Principal Financial to Zacks Rank #2 (Buy). The investment manager delivered positive surprises in two of the last four quarters with an average beat of 1.57%. The long-term expected earnings growth is pegged at 8.40%. Also, the price earnings growth ratio, which determines the relative trade-off between the price of a stock, the earnings generated per share, and the company's expected growth, is 1.53 – better than the industry average of 1.49.
Valuation is also attractive at present as the stock is currently trading at a forward P/E of 13.0x, a 6.5% discount to the industry average of 13.9x. Principal Financial has a trailing 12-month return on equity (ROE) of 12.8%, higher than the industry average of 11.2%.
Stocks to Consider
Some better-ranked stocks from the same space include Alleghany Corporation Y, NMI Holdings, Inc. NMIH and Arch Capital Group Ltd. ACGL. Each of these stocks sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Alleghany Corporation deals with P&C reinsurance and insurance businesses in the U.S. and internationally. The company delivered positive surprises in three of the last four quarters with an average beat of 20.52%.
NMI Holdings offers private mortgage guaranty insurance services in the U.S. The company delivered positive surprises in all of the last four quarters with an average beat of 62.80%.
Arch Capital offers property, casualty, and mortgage insurance and reinsurance products worldwide. It delivered positive surprises in all of the last four quarter with an average beat of 9.27%.
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