Why Should You Buy Principal Financial (PFG) Stock Now?

Principal Financial Group Inc. (NYSE:PFG) remains poised for growth, banking on deeper focus on fee-based revenue sources, strategic acquisitions, improving asset under management and effective capital deployment. The Zacks Rank #2 (Buy) investment manager looks promising on the back of a number of growth drivers.

Growth Projections: The Zacks Consensus Estimate for earnings per share is $5.19 on revenues of $12.2 billion for 2017. While the bottom line reflects 14.1% growth, the top line shows a year-over-year increase of 5.9%. For 2018, the Zacks Consensus Estimate for earnings per share is pegged at $5.49 on revenues of $14.5 billion. The bottom line reflects 5.7% growth, while the top line represents a 14.5% year-over-year rise.

Principal Financial has long-term expected earnings per share growth of 9.2%.

Northbound Estimates: The Zacks Consensus Estimate for 2017 has improved 2.2% in the last 60 days, while the same for 2018 has nudged up 1.3% over the same time frame. This is reflected in the company’s Zacks Rank.

An Outperformer: Shares of Principal Financial have rallied 27.5% in a year, outperforming the industry’s rally of 19.8%. The shares have also outperformed the S&P 500, gaining 13.0% over the same time frame.

Attractive Valuation: Looking at the company’s price-to-book ratio, which is the best multiple for valuing investment managers because of large variations in their earnings results from one quarter to the next, valuation looks attractive at the current level. The company has a trailing 12-month P/B ratio of 1.61, falling significantly below the industry average of 2.2. Undervalued shares with growth prospects are best investment bets.

Positive Earnings Surprise History: Principal Financial has surpassed the Zacks Consensus Estimate in the last four quarters with an average four-quarter surprise of 7.26%.

Growth Drivers in Place

Riding on better results at three asset management and asset accumulation segments, the assets under management is expected to increase. Principal Financial envisions $1 trillion in assets under management in five to seven years.

An improving interest rate environment will continue to lend an impetus for better investment results.

Principal Financial projects, in the next five years, to grow premium and fee at Individual Life in the range of 4-8%, while for Specialty Benefits, the same is estimated to increase 8-10%. Also, pre-tax margin is anticipated to surge above 30% over the next five years. Over the same timeframe, pre-tax operating margin is expected between 16% and 21% at Life and in the 8-12% band at Specialty Benefits. The company also estimates 50-80 basis points of annual ROE expansion going forward.

A strong capital position should further help Principal Financial return value to shareholders. The company expects to deploy capital between $800 million and $1.1 billion in 2017. Over the long term, Principal Financial estimates spending 65-70% of net income in capital deployment.

Other Stocks to Consider

Investors interested in investment managers can look at Och-Ziff Capital Management Group LLC (NYSE:OZM) , Pzena Investment Management, Inc (NYSE:PZN) and Cohen & Steers, Inc. (NYSE:CNS) .

Och-Ziff Capital Management, an ace institutional alternative asset manager, provides asset management services. The stock carries a Zacks Rank #1 (Strong Buy) and delivered a four-quarter average positive surprise of 179.17%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Pzena Investment manages equity mutual funds for its clients. The stock carries a Zacks Rank #2 and delivered a four-quarter average positive surprise of 11.11%.

Cohen & Steers provides its services to institutional investors, including pension funds, endowments and foundations. The stock carries a Zacks Rank #2 and delivered surprises in the trailing four quarters with an average beat of 0.57%.

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