Insurance Stocks

Principal Financial Group Inc Valuation – January 2019 $PFG

Company Profile (excerpt from Reuters): Principal Financial Group, Inc., incorporated on April 18, 2001, is an investment management company. The Company offers a range of financial products and services, including retirement, asset management and insurance. The Company’s segments include Retirement and Income Solutions; Principal Global Investors, Principal International; U.S. Insurance Solutions, and Corporate. The Company focuses on small and medium-sized businesses, providing a range of retirement and employee benefit solutions, and individual insurance solutions to meet the needs of the business owners and their employees. The Company offers services to businesses, individuals and institutional clients.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of PFG – January 2019

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 $12,822,074,184 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 212.01% Pass
5. Moderate PEmg Ratio PEmg < 20 7.92 Pass
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.11 Pass
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

EPSmg $5.72
MG Growth Estimate 14.56%
MG Value $215.28
Opinion Undervalued
MG Grade A
MG Value based on 3% Growth $82.98
MG Value based on 0% Growth $48.64
Market Implied Growth Rate -0.29%
Current Price $45.30
% of Intrinsic Value 21.04%

Principal Financial Group Inc qualifies for both the Defensive Investor and the Enterprising Investor. In fact, the company meets all of the requirements of both investor types, a rare accomplishment indicative of the company’s strong financial position . The Enterprising Investor has no initial concerns. As a result, all value investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $2.9 in 2014 to an estimated $5.72 for 2018. This level of demonstrated earnings growth outpaces the market’s implied estimate of 0.29% annual earnings loss 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.

At the time of valuation, further research into Principal Financial Group Inc revealed the company was trading below its Graham Number of $76.24. The company pays a dividend of $1.87 per share, for a yield of 4.1%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 7.92, which was below the industry average of 30.63, which by some methods of valuation makes it one of the most undervalued stocks in its industry.

Principal Financial Group Inc fares extremely well in the ModernGraham grading system, scoring an A.

Stage 3: Information for Further Research

Graham Number $76.24
PEmg 7.92
PB Ratio 1.11
Dividend Yield 4.13%
TTM Dividend $1.87
Number of Consecutive Years of Dividend Growth 9

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Most Recent Balance Sheet Figures

Balance Sheet Information 9/1/2018
Long-Term Debt & Capital Lease Obligation $3,245,500,000
Total Assets $258,758,300,000
Intangible Assets $2,482,600,000
Total Liabilities $246,989,600,000
Shares Outstanding (Diluted Average) 287,800,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $5.81
Dec2017 $7.88
Dec2016 $4.50
Dec2015 $4.06
Dec2014 $3.65
Dec2013 $2.95
Dec2012 $2.58
Dec2011 $1.91
Dec2010 $1.95
Dec2009 $1.97
Dec2008 $1.63
Dec2007 $3.09
Dec2006 $3.74
Dec2005 $3.11
Dec2004 $2.62
Dec2003 $2.28
Dec2002 $0.41
Dec2001 $0.99

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $5.72
Dec2017 $5.32
Dec2016 $3.88
Dec2015 $3.39
Dec2014 $2.90
Dec2013 $2.44
Dec2012 $2.13
Dec2011 $1.97
Dec2010 $2.16
Dec2009 $2.42
Dec2008 $2.70
Dec2007 $3.15
Dec2006 $2.93
Dec2005 $2.31
Dec2004 $1.70
Dec2003 $1.07
Dec2002 $0.40

Recommended Reading:

Other ModernGraham posts about the company

10 Low PE Stock Picks for the Defensive Investor – August 2018
10 Undervalued Companies for the Defensive Dividend Stock Investor – July 2018
Best Stocks Below Their Graham Number – June 2018
10 Low PE Stock Picks for the Defensive Investor – June 2018
10 Undervalued Companies for the Defensive Dividend Stock Investor – June 2018

Other ModernGraham posts about related companies

Progressive Corp Valuation – January 2019 $PGR
Lincoln National Corp Valuation – January 2019 $LNC
Cincinnati Financial Corp Valuation – January 2019 $CINF
Aon PLC Valuation – November 2018 $AON
Travelers Companies Inc Valuation – November 2018 $TRV
Stewart Information Services Corp Valuation – August 2018 $STC
Kemper Corp Valuation – August 2018 $KMPR
CNO Financial Group Inc Valuation – August 2018 $CNO
Sun Life Financial Inc Valuation – August 2018 $TSE-SLF
American Financial Group Inc Valuation – August 2018 $AFG

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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