JPMorgan upgrades Principal Financial stock, cites macroeconomic boost By Investing.com

On Tuesday, JPMorgan adjusted its stance on Principal Financial Group (NASDAQ:), listed on NASDAQ:PFG, raising the stock’s rating from Underweight to Neutral and increasing the price target to $96 from the previous $88.

The decision comes after considering the positive macroeconomic environment, anticipated betterment in the company’s Principal Global Investors (PGI) division’s performance, and the stock’s lackluster performance relative to its peers.

The financial services firm has seen its shares remain relatively stagnant, while the broader life insurance sector has experienced a near 30% gain. The upgraded outlook is based on the belief that Principal Financial Group possesses a superior business mix with lower tail risk, which is expected to yield a higher return on equity (ROE) and more robust free cash flow compared to other life insurers.

The JPMorgan analyst acknowledged that while there have been persistent secular challenges in the defined contribution (DC) market and unfavorable trends in the PGI business, these concerns have been somewhat mitigated. The improvement in asset management, marked by an anticipated recovery in net flows in both fixed income and equity funds, has contributed to the revised rating.

The upgrade reflects a shift in perspective regarding Principal Financial Group’s prospects, recognizing improvements in specific business segments despite the unchanged long-term outlook for the DC market margins and flows. The company’s share performance has not kept pace with the sector’s growth, prompting a reassessment of its market position and potential.

In other recent news, Principal Financial Group has delivered robust Q1 2024 results, with non-GAAP operating earnings reaching $394 million, marking an 11% increase in earnings per share (EPS) compared to the same period in the previous year. This strong financial performance was accompanied by a shareholder return of over $360 million, including $200 million in share repurchases.

In addition to its impressive earnings, Principal Financial Group has also announced the acquisition of the employee stock ownership plan (ESOP) business of Ascensus. This strategic move will add approximately 800 plans and over 165,000 participants to Principal’s workplace savings and retirement solutions business, reinforcing its position as the leading ESOP service provider in the United States.

Following the announcement of the acquisition, Piper Sandler maintained its Neutral rating and an $85.00 price target for Principal Financial Group’s shares. The acquisition, which is indicative of ongoing consolidation within the life insurance and retirement sector, is expected to close in the second quarter of 2024.

These recent developments align with Principal Financial Group’s emphasis on the smaller end of the pension risk transfer market and are expected to enhance the company’s total addressable market for its products.

InvestingPro Insights

Adding to the analysis provided by JPMorgan, real-time data from InvestingPro underscores Principal Financial Group’s (NASDAQ:PFG) financial resilience and potential for growth. With a solid market capitalization of $18.28 billion and a forward-looking P/E ratio that has adjusted to 14.11 as of Q1 2024, the company presents an attractive valuation for investors considering the sector’s dynamics. Importantly, PFG has demonstrated a commitment to shareholder returns, boasting a dividend yield of 3.64% as of mid-2024, complemented by a noteworthy track record of raising its dividend for 15 consecutive years, which aligns with the firm’s historical practice of maintaining dividend payments for over two decades.

InvestingPro Tips further reveal that analysts are optimistic about Principal Financial Group’s trajectory, with 6 analysts having revised their earnings upwards for the upcoming period, indicating confidence in the company’s ability to outperform. Moreover, the expectation of net income growth this year, as well as predictions of sustained profitability, provide a reassuring signal to investors. For those seeking more in-depth analysis and additional tips, there are 5 more insights available on InvestingPro, which can be accessed by using the coupon code PRONEWS24 for up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.