Principal Financial Group Inc. (PFG) continues to post solid growth in assets under management. Also, the company continues to effectively deploy $1 billion of capital. Moreover, Principal Financial scores strongly with the credit rating agency.
However, volatility in the financial markets and Principal’s investment portfolio exposure to commercial real estate are partial offsets. Thus we remain Neutral on the company.
Principal posted a 12% growth in assets under management in the second quarter, driven by improved results at three asset management and asset accumulation segments. The company is positioned to continue delivering solid operating results on the back of its extensive distribution footprint, best-in-class solutions and operational discipline.
Principal now has $1 billion available capital for deployment in 2011. This is a $300 million increase on the original full year estimate. The company intended to deploy the capital either in returning value to shareholders or for inorganic growth.
During the second quarter, to expand its equities business, Principal Global Investors agreed to purchase a 74% stake in London-based Origin Asset Management. The acquisition of Origin would strengthen Principal’s global equity capability, broaden its product suite, as well as enhance its investment potential in emerging markets and in global small and mid-cap companies that seek high quality investments.
Recently, in August, Principal Financial’s Board of Directors authorized a buyback of $200 million of common stock. The new authorization is part of the company’s strategy to deploy up to $400 million of capital for acquisitions or share buybacks in the second half of 2011. Earlier, in May 2011, the Board of Directors had authorized a buyback of $250 million of common stock. These buyback programs are a part of the capital deployment strategy.
On the flip side, the volatility in the financial markets is expected to continue, a situation that may cap the upward potential of the share price in the near-to-medium term.
Principal’s investment portfolio has a high exposure to commercial real estate. The increasing delinquency rate and defaults under its commercial mortgage loan portfolio will keep the company’s financial strength and profitability under pressure.
Principal Financial reported a strong second quarter with operating earnings of 73 cents per share, modestly surpassing the Zacks Consensus Estimate by a penny. Results were ahead of 59 cents earned in the prior-year quarter.
Principal Financial delivered a strong quarter on the heels of double-digit earnings growth from Retirement and Investor Services and Principal Global Investors, followed by single digit growth at Principal International.
No analysts covering the stock have raised their estimates for the third quarter as well as fiscal 2011 over the past 30 days. However, for the third quarter and fiscal 2011, one out of 15 analysts covering the stock lowered his estimates over the past 7 days and 5 analysts lowered the same over the past 30 days.
The quantitative Zacks #3 Rank (short-term Hold rating) for the company indicates no clear directional pressure on the shares over the near term.
Based in Des Moines, Iowa, Principal Financial Group Inc. provides an expansive range of retirement savings, investment and insurance products and services through its various subsidiaries. It competes with Lincoln National Corporation (LNC).
