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Reasons Why Investors Should Retain Principal Financial (PFG)

Principal Financial (PFG) continues to benefit from higher assets under management, improved liquidity position and effective capital deployment.

This story originally appeared on Zacks

Principal Financial Group, Inc. PFG continues to be an investor favorite on the back of its growth in fee-based businesses, foreign currency tailwinds and a positive net cash flow.

- Zacks

Growth Projections

The Zacks Consensus Estimate for 2021 and 2022 earnings per share is pegged at $6.49 and $7.06, indicating an increase of 31.3% and 8.8%, respectively, from the corresponding year-ago reported figures. The expected long-term earnings growth rate is pegged at 15.2%.

Estimate Revision

The Zacks Consensus Estimate for 2021 and 2022 earnings has moved 3% and 1.6% north, respectively, in the past 60 days. This should instill investors' confidence in the stock.

Zacks Rank & Price Performance

Principal Financial currently carries a Zacks Rank #3 (Hold). The stock has rallied 30.8%, outperforming the industry’s increase of 28.3% year to date.

Zacks Investment Research

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Business Tailwinds

The Principal International segment of Principal Financial expects to deliver 8-12% growth in revenues for 2021 excluding significant variances and the segment’s operating earnings should gain from foreign currency tailwinds.

Principal Financial targets earnings per share growth of 9-12%, which it projects to achieve through a narrowed focus on higher growth and more capital-efficient businesses. Moreover, it expects to generate 70-80% free capital conversion.

With positive net cash flow, strategic buyouts and operational discipline, Principal Financial’s assets under management should continue to benefit.

The investment manager has always emphasized on fee-based businesses and focused on retirement in the United States and the select emerging markets, global asset management, and the U.S. specialty benefits and protection in the small-to-medium-sized business market. These businesses are well poised for long-term growth, capital-efficiency and higher fee-based revenues.

It also continues to maintain a robust financial position with $2.5 billion of excess and available capital that includes $1.7 billion at the holding company, more than double the $800-million target to cover the next 12 months of obligations, $325 million in excess of the targeted 400% risk-based capital ratio, which was estimated to be 421% as well as $460 million of available cash in its subsidiaries.

Moreover, it maintained a leverage ratio of 20-25% and expects to pay down $300 million of long-term debt when it matures in late 2022.

The company hiked its dividend by 13% in the third quarter and currently yields 3.9%, better than the industry average of 2.3%. For 2021, it continues to target a 40% dividend payout ratio.

In June 2021, the board approved a $1.2-billion buyback program and estimates $1.4-1.8 billion of capital deployment including $600-$800 million of share repurchases for the current year. This makes the stock an attractive pick for yield-seeking investors. Also, the impact of credit drift and credit losses is expected to remain insignificant for 2021.

Stocks to Consider

Some better-ranked stocks from the finance sector are Affiliated Managers Group, Inc. AMG, Apollo Global Management, Inc. APO and Ares Management Corporation ARES, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Earnings of Affiliated Managers surpassed estimates in each of the last four quarters, the average being 8.36%.

Apollo Global’s bottom line surpassed estimates in three of the last four quarters, missing the mark in the remaining one, the average beat being 23.57%.

Ares Management’s earnings surpassed estimates in three of the last four quarters, missing the same in the remaining one, the average beat being 13.12%.

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Principal Financial Group, Inc. (PFG): Free Stock Analysis Report


Apollo Global Management, Inc. (APO): Free Stock Analysis Report


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Ares Management Corporation (ARES): Free Stock Analysis Report


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