To return more value to its shareholders, the board of directors of Principal Financial Group (PFG) approved a share repurchase program wherein the company is authorized to buy back up to $100 million worth of shares.
The authorization is a part of the company’s strategy to deploy $800-900 million in 2012 in acquisitions, dividend payments and share repurchases.
In 2011, the company had deployed $1 billion of capital in acquisitions, dividend payments and repurchasing shares.
The repurchase authorization is primarily supported by Principal’s strong balance sheet and its ability to generate healthy cash flow. Principal exited 2011 with cash and equivalents of $2.83 billion compared with $1.88 billion at 2010 end. Cash from operations was $2.7 billion, almost flat with 2010.
The last buyback authorization, worth a $100 million of shares, was made in November 2011.
Principal has always actively bought back shares. In 2011, the company spent $550 million in share repurchases buying back 20.9 million shares with 4.1 million bought back in the fourth quarter.
Following the company’s announcement, there was a spurt in the share movement. During the fourth quarter of 2011, the company exhausted its previous share repurchase authorization. It is possible that the new authorization has reaffirmed investor confidence in the company as reflected in market optimism. The share price of Principal inched up 0.4% to close at $27.66 on Wednesday.
Over the last 7 days, 2 out of 17 analysts covering the stock nudged their estimates downward for the first quarter of 2012, while 1 out of 16 analysts revised it downward for the second quarter of 2012. None of them increased their estimates. We believe the news of the share buyback might encourage analysts to pull their estimates upward. The current Zacks Consensus Estimate for first-quarter 2012 is 74 cents per share. For full year 2012 and 2013, the Zacks Consensus Estimates are, respectively, $3.13 and $3.57.
Principal Financial fared well in the fourth quarter on the heels of double-digit earnings gain in Principal International, Principal Global Investors and U.S. Insurance Solutions. Performance at Retirement and Investor Service businesses remained weak. The low interest rate environment is also a concern.
We retain our Neutral recommendation on Principal Financial. The quantitative Zacks #3 Rank (short-term Hold rating) for the company indicates no clear directional pressure on the stock 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. The company competes with Lincoln National Corporation (LNC).
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