Despite Missing Estimates, Principal Financial Group Inc Stock Is a Compelling Buy

PFG - Despite Missing Estimates, Principal Financial Group Inc Stock Is a Compelling Buy

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Principal Financial Group Inc (NASDAQ:PFG) just missed quarterly earnings. While overall annual profits increased, this quarterly miss is shocking given that the company usually meets earnings expectations over time. Still, with yearly earnings per share (EPS) still enjoying a double-digit growth rate, PFG stock should continue on its growth trajectory.

Impressive Annual Growth Despite Missing Estimates

PFG reported EPS for 4Q 2017 of $1.19 per share. Analysts estimated $1.37 per share on a consensus basis. For all of 2017, the company earned $5.04 per share. This number also missed the consensus number of $5.22 per share. However, EPS still rose 11% from the $4.55 level of 2016.

Like EPS, revenues also missed estimates. 4Q 2017 revenues came in at $3.28 billion. This represents a drop from 4Q 2016 when the company brought in $3.58 billion. Analysts were looking for $3.53 billion. Annual 2017 revenues also missed but beat the $12.38 billion set in 2016. The company reported $13.57 billion in revenues, a 9.8% increase.

The quarterly earnings and revenue misses are unusual for PFG. The Des Moines, Iowa-based financial services firm had traditionally slightly missed or slightly exceeded estimates. It still met consensus estimates over the long term.

Still, optimists on PFG stock have plenty of data to back up a bull case for this equity.

The company has grown its revenues at an average 7.4% per year over the last five years. Revenue growth for 2017 exceeded this average. Earnings per share (EPS) growth has seen levels in the double digits for most of the decade. Analysts expect EPS growth levels will fall into the single digits after 2018, but they’ll remain robust nonetheless.

Dividend Yield at a Low Valuation

The market has rewarded Principal stock. Coming from a low of below $6 per share in March 2009, PFG stock has enjoyed an upward trend since that time. Despite the tremendous growth in the stock, the price-to-earnings (PE) ratio stands at just over 12 times earnings.

While this is about 50% below the current S&P 500 average, it has a comparable PE to peers such as Prudential Financial Inc (NYSE:PRU) and Aflac Incorporated (NYSE:AFL) and also to the forward PE of Metlife Inc (NYSE:MET).

Regarding dividends, PFG stock has also rewarded shareholders handsomely. The stock cut its dividend following the financial crisis of 2008. However, every year since then, the dividend has risen. It currently stands at an annual level of $1.96 per share. That amounts to a 2.5% dividend yield at current prices. The S&P 500 average yield is about 1.75%.

Principal stock likely suffers from operating in an industry that doesn’t attract much attention. Despite a disappointing report on Jan. 29, the case to buy this equity remains. By buying PFG stock, investors receive a higher-than-average dividend. They also buy a stock that has enjoyed double-digit EPS growth while paying only 12 times earnings.

Moreover, the stock market investing that Principal facilitates continues to enjoy a comeback from the 2008-09 lows. With the recent cut in corporate income taxes, EPS will likely increase. This increased profit should filter down to stocks, lifting the overall market, and by extension, PFG stock.

Final Thoughts on PFG Stock

PFG stock disappointed investors in the most recent reports. However, the long-term growth rate remains on track. To be sure, missing quarterly estimates by 18 cents comes as a shock when the company tends to report numbers close to consensus. However, despite the miss, annual EPS growth remained in the double digits.

Moreover, with this double-digit growth, investors can still buy in at around 12 times earnings and earn 2.5% on a dividend that grows in most years.

No, PFG stock will likely not see the kind of move witnessed in popular stocks such as Netflix, Inc. (NASDAQ:NFLX) or Tesla Inc (NASDAQ:TSLA). However, for those wanting safe and steady growth with a dividend, one can do worse than PFG stock.

As of this writing, Will Healy did not hold a position in any of the aforementioned stocks.

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