Principal Financial Upgraded to Buy - Analyst Blog

On Jun 17, 2014, Zacks Investment Research upgraded Principal Financial Group Inc. PFG to a Zacks  Rank #2 (Buy).

Why the Upgrade?

Principal Financial has been witnessing rising earnings estimates on the back of strong first-quarter 2014 results, dividend hike and new share repurchase authorization. Moreover, this well-known investment management company delivered positive earnings surprises in all of the last 4 quarters with an average beat of 8.22%. The long-term expected earnings growth rate for this stock is 11.7%.   

Principal Financial reported first-quarter earnings on May 24. Operating earnings per share came in at $1.06, surpassing the Zacks Consensus Estimate by 15.2% and higher than the year-ago quarter figure by 34.2%. Improvement in the fee-based businesses and investment income mainly led to the year-over-year increase.

Additionally, the board of directors of Principal Financial approved a 14% increase in its quarterly dividend. Per the hike, the new dividend is 32 cents per share. Based on the closing share price of $49.88 in the last trading session, this new dividend translates into a yield of 2.60%, higher than the sector average of 2.14% and that of other players in the industry like Cohen & Steers Inc. CNS and Ameriprise Financial, Inc. AMP with dividend yield of 2.10% and 1.98%, respectively. Principal Financial also approved a $200 share repurchase program. The dividend hike and the new share repurchase program reflect the company's financial strength.

The Zacks Consensus Estimate for 2014 increased 5.7% to $4.10 per share as most of the estimates were revised higher over the last 60 days. For 2015, almost all of the estimates were revised higher over the same time frame, lifting the Zacks Consensus Estimate by 3.3% to $4.37 per share.

Other Stocks to Consider

Other players in the investment management space that look attractive at current levels include Cohen & Steers, Ameriprise and Woori Finance Holdings Co., Ltd. WF. While Cohen & Steers and Woori Finance sport a Zacks Rank #1 (Strong Buy), Ameriprise has the same Zacks Rank as Principal Financial.

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