Insurance Stocks

Principal Financial Group Valuation – November 2015 Update $PFG

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Most Undervalued Companies for the Defensive Investor – October 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Principal Financial Group (PFG) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Principal Financial Group, Inc. is an investment management company. The Company offers businesses, individuals and institutional clients a range of financial products and services, including retirement, asset management and insurance through its financial services companies. Its segments include Retirement and Investor Services, Principal Global Investors, Principal International, and U.S. Insurance Solutions. Its Retirement and Investor Services segment provides retirement and related financial products and services primarily to businesses, their employees and other individuals. The Principal Global Investors segment provides asset management services.. The Principal International segment offers pension accumulation products and services, mutual funds, asset management, income annuities and life insurance accumulation products. The U.S. Insurance Solutions segment offers individual and group insurance solutions.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of PFG – November 2015

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass all 6 of the following tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $14,892,428,599 Pass
2. Earnings Stability Positive EPS for 10 years prior Pass
3. Dividend Record Dividend Payments for 10 years prior Pass
4. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 27.66% Fail
5. Moderate PEmg Ratio PEmg < 20 14.77 Pass
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.57 Pass
Score
Enterprising Investor; must pass all 3 of the following tests, or be suitable for the Defensive Investor.
1. Earnings Stability Positive EPS for 5 years prior Pass
2. Dividend Record Currently Pays Dividend Pass
3. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

PFG value Chart November 2015

EPSmg $3.44
MG Growth Estimate 10.94%
MG Value $104.46
Opinion Undervalued
MG Value based on 3% Growth $49.84
MG Value based on 0% Growth $29.22
Market Implied Growth Rate 3.13%
Current Price $50.76
% of Intrinsic Value 48.59%

Principal Financial Group qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the insufficient earnings growth over the last ten years.  The Enterprising Investor has no initial concerns.  As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.99 in 2011 to an estimated $3.44 for 2015.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 3.13% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Principal Financial Group (PFG)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Stage 3: Information for Further Research

PFG Charts November 2015

Graham Number $55.54
PEmg 14.77
PB Ratio 1.57
Dividend Yield 2.88%
Number of Consecutive Years of Dividend Growth 7

 

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Most Recent Balance Sheet Figures

Long-Term Debt $3,286,100,000
Total Assets $215,365,400,000
Intangible Assets $2,404,100,000
Total Liabilities $205,745,100,000
Shares Outstanding (Diluted Average) 298,500,000

Earnings Per Share History

Next Fiscal Year Estimate $4.20
Dec14 $3.65
Dec13 $2.95
Dec12 $2.58
Dec11 $1.95
Dec10 $1.95
Dec09 $1.97
Dec08 $1.63
Dec07 $3.09
Dec06 $3.74
Dec05 $3.11
Dec04 $2.62
Dec03 $2.28
Dec02 $0.41
Dec01 $0.99

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $3.44
Dec14 $2.91
Dec13 $2.45
Dec12 $2.14
Dec11 $1.99
Dec10 $2.16
Dec09 $2.42
Dec08 $2.70
Dec07 $3.15
Dec06 $2.93
Dec05 $2.31
Dec04 $1.70
Dec03 $1.07
Dec02 $0.40
Dec01 $0.33

Recommended Reading:

Other ModernGraham posts about the company

The Best Companies of the Insurance Industry – October 2015
The 20 Best Stocks For Value Investors This Week – 8/15/15
Principal Financial Group Analysis – August 2015 Update $PFG
The Best Companies of the Insurance Industry – June 2015
47 Companies in the Spotlight This Week – 5/16/15

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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