Principal Financial Gets a Buy Rating from Wells Fargo

By Austin Angelo

Wells Fargo analyst Sean Dargan reiterated a Buy rating on Principal Financial (NYSE: PFG) today. The company’s shares closed yesterday at $64.69, close to its 52-week high of $66.12.

Dargan wrote:

“We were on the road with Principal Financial on June 28 meeting with Mid-Atlantic investors. From PFG were Deanna Strable, Executive Vice President and Chief Financial Officer, and John Egan, Vice President, Investor Relations. We are raising our Q2 2017 EPS estimate to $1.24 from $1.22 and 2017E to $5.11 from $5.05, largely to reflect better-than-modeled equity market performance and in-line encaje returns, which were in part offset by lower fixed- income yields and contracted corporate spreads in the quarter. Our 2017E of $5.11 and 2018E of $5.50 are both slightly higher than FactSet consensus of $5.04 and $5.39, respectively. We are also raising our price target to $74 per share from $73 per share, primarily to reflect recent asset management multiple expansion.  Composition of 30-60 bps average annual ROE expansion. Principal is unusual in our coverage universe in that it is growing normalized organic earnings and expanding ROE without material share repurchase. In 2016, repurchase equaled about 1.9% of the float. According to PFG, the real driver in the targeted 30-60 bps of annual ROE expansion will be growth in the numerator (earnings) rather than shrinking the denominator (equity). Earnings are expected to grow 9-12% per year while equity growth will be flattish after accounting for dividend growth and opportunistic share repurchase. Embedded in 9-12% earnings growth is an expectation of 4-5% market performance, 4-5% growth from sales and net cash flows and 1-2% operational efficiency.”

According to, Dargan is a 3-star analyst with an average return of 7.2% and a 60.6% success rate. Dargan covers the Financial sector, focusing on stocks such as Marsh & Mclennan Companies, Prudential Financial Inc, and Fidelity & Guaranty Life.

Principal Financial has an analyst consensus of Moderate Buy, with a price target consensus of $69.50.

Principal Financial’s market cap is currently $18.64B and has a P/E ratio of 14.57. The company has a book value ratio of 1.7556.

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The Principal Financial Group, Inc. is a global financial company, which offers businesses, individuals and institutional clients financial products and services. It specializes in retirement solutions, insurance, and investment products through the company’s diverse family of financial services companies and national network of financial professionals.