On Tuesday, JPMorgan (NYSE:JPM) upgraded Principal Financial Group (NASDAQ:PFG) shares, moving the rating from Neutral to Overweight, despite lowering the price target to $92.00 from the previous $95.00. The analyst highlighted the company's lower-risk business mix and an improved outlook for operating trends as key reasons for the upgrade. He also pointed out the stock's attractive valuation in comparison to its peers.
According to InvestingPro data, the $17.8 billion market cap company currently trades below its Fair Value, with analyst targets ranging from $75 to $99.
JPMorgan's analysis acknowledges Principal Financial Group's robust business model, which boasts a higher return on equity (ROE) and better free cash flow than most of its life insurance counterparts. The company's resilience is attributed to its diverse business mix that carries lower tail risk.
InvestingPro analysis reveals impressive dividend credentials, with 16 consecutive years of dividend increases and a current yield of 3.75%. Although the stock has been rated Underweight from October 2022 to July 2024 and Neutral thereafter, the current upgrade reflects a more positive perspective.
The JPMorgan analyst noted past concerns regarding the retirement of baby boomers impacting the defined contribution/401(k) market, alongside fee pressures in Principal Financial's core businesses of retirement and asset management.
Additionally, there were issues with weak net flows within the asset management sector. However, the outlook has shifted, with expectations for these net flows to improve, particularly in fixed income and real estate-related funds.
While the 401(k) market may still face short-term growth challenges, JPMorgan anticipates that the long-term prospects for asset flows and assets under management (AUM) will enhance post the peak retirement phase of baby boomers. The analyst also mentioned that the previous growth concerns are now more accurately mirrored in the cautious investor sentiment and the company's valuation, which is now more aligned with the broader life insurance sector.
In other recent news, Principal Financial Group has experienced a series of significant developments. Wells Fargo (NYSE:WFC) issued a downgrade for the company, alongside reduced earnings per share (EPS) estimates for 2025 and 2026. Similarly, Morgan Stanley (NYSE:MS) downgraded the company due to concerns over slower growth in its Principal Global Investors and Principal International sectors. Despite these downgrades, RBC (TSX:RY) Capital raised its target for Principal Financial following the company's Investor Day.
Principal Financial Group also reported a 12% increase in its Q3 2024 non-GAAP operating earnings, totaling $412 million. The company's total assets under management (AUM) also rose by 6% to $741 billion, alongside a 5% increase in net revenue. Analysts from Principal Financial Group project a full-year EPS growth of 9% to 12%.
In leadership developments, Principal Financial Group announced the appointment of Deanna Strable as its new CEO, effective from January 7, 2025. Strable, a veteran with a 35-year career at Principal, will succeed Dan Houston, who will continue as the executive chair of the Board. These are the latest updates in the ongoing evolution and financial performance of Principal Financial Group.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.