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Principal Financial (PFG) Issues 2018 Guidance, Shares Down

Principal Financial Group Inc. PFG has provided projections for 2018 and announced its capital deployment plans. However, shares dipped about 1.05% in the last trading session to finally close at $70.78 on Dec 12.

Principal Financial estimates net revenue growth in the range of 2-5% at Retirement and Income Solutions – Fees and 5-10% at Retirement and Income Solutions – Spread.

Revenues are estimated to increase 4-8% at Principal Global Investors. The pre-tax return on revenue estimates is 34-38%.

Principal International is expected to deliver net revenue growth between 11% and 14% in 2018.

While solid sales and retention as well as employment recovery will drive Specialty Benefits premiums and fees by 7-9%, loss ratio is estimated at 62-68% on improved underwriting.

Premiums and fees at Individual Life are projected to increase in the band of 3-6%.

Operating losses at Corporate and Other are likely to be in the band of $190-$210 million in 2018.

Principal Financial anticipates the tax rate at approximately 21-23%.

Given the company’s increased digital investments, operating earnings growth in 2018 is expected to be lowered by about two percentage points over 2017. Nonetheless, the growth rate is forecast to remain between 9% and 12% over the long term.

Over the past few years, the company has set aside capital for deployment in either strategic acquisitions or for enhancing shareholders’ value. In 2018, the company intends to utilize $0.9-$1.3 billion for quarterly dividends, strategic acquisitions and share buybacks as well as to deleverage its balance sheet. This is above the expected capital deployment of $0.8-$1 billion for 2017. Of this, the company already returned $604.5 million to shareholders through the first three quarters of 2017.  Management intends to use 65-70% of the net income for capital deployment over the long term.

Principal Financial expects shares outstanding of 290-292 million at year-end 2018.

The company intends to focus more on strategic opportunities in the growing asset accumulation and asset management businesses. Also, it is well-positioned on the back of an extensive distribution footprint, best-in-class solutions and operational discipline. Deeper focus on fee-based revenue sources has been helping the company earn steadily and limit exposure to the adverse interest rate environment. We believe that these attributes will help it meet its expectations going forward.

Quarter to date, the Principal Financial stock has gained 10%, surpassing the 6% growth of its industry. The company has not witnessed any earnings momentum in the last 30 days. With the new view instilling confidence in the company’s operational performance, we expect analysts to raise their estimates. Principal Financial carries a Zacks Rank #3 (Hold).



Stocks to Consider

Some better-ranked investment managers are AllianceBernstein Holding L.P. AB, Ameriprise Financial, Inc AMP and Federated Investors, Inc. FII, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

AllianceBernstein, a publicly owned investment manager, provides research services to its clients. The company delivered a four-quarter average beat of 11.62%.

Ameriprise Financial provides various financial products and services to individual and institutional clients in the United States and internationally. The company pulled off a four- quarter average positive surprise of 12.45%.

Federated Investors is a publicly owned asset management holding company. The company came up with a four-quarter average positive surprise of 4.47%.

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