Principal Financial (PFG) Q4 Earnings: What's In The Cards?

Principal Financial Group, Inc. (NASDAQ:PFG) is slated to report fourth-quarter 2018 results on Jan 29, after market close. In the last reported quarter, the company came delivered negative surprise of 2.34%.

Let’s see how things are shaping up for this announcement.

Factors to Consider

Principal Financial’s fourth-quarter performance is expected to benefit from solid retirement and long-term savings, group benefits and protection in the United States, and retirement and long-term savings in Latin America and Asia.

Higher fee-based revenues and an increase in investment income are likely to drive revenue improvement. The Zacks Consensus Estimate for revenues is pegged at $3.7 billion, up 11.6% from fourth-quarter 2017.

A better rate environment, with four rate hikes made in 2018, is expected to boost net investment income.

Extensive distribution footprint, best-in-class solutions, strategic acquisitions and operational discipline are likely to boost performance of asset management and asset accumulation segments. This, in turn, will likely drive assets under management.

Continued share repurchases as well as a lower tax rate should lend additional cushion to the bottom line. The company expects share count to be 290-292 million at 2018 end. The Zacks Consensus Estimate for earnings stands at $1.33 per share, up 11.7% year over year.

The company directed $0.9-$1.3 billion toward capital deployment in 2018.

However, the company expects operating expenses to increase attributable to higher branding expenses, benefit costs as well as variable sales expenses.

For 2018, Principal Financial estimates net revenue growth in the range of 2%-5% at Retirement and Income Solutions – Fees and 5-10% at Retirement and Income Solutions – Spread. Revenues are estimated to increase 4-8% at Principal Global Investors. The pre-tax return on revenue estimates is 34-38%. Principal International is expected to deliver net revenue growth between 11% and 14% in 2018. Solid sales, retention and employment recovery will drive Specialty Benefits premiums and fees by 7-9%. Loss ratio is estimated to be 62-68% on improved underwriting. Premiums and fees at Individual Life are projected to increase in the band of 3-6%.

Given the company’s increased digital investments, operating earnings growth in 2018 is expected to be down about two percentage points from 2017.

Principal Financial Group, Inc. Price and EPS Surprise

What Our Quantitative Model Predicts

Our proven model does not conclusively show that Principal Financial is likely to beat on earnings this reporting season. This is because a stock needs to have both a positive Earnings ESP and a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. But that is not the case here as you will see below.

Earnings ESP: Principal Financial has an Earnings ESP of 0.00%. This is because both the Most Accurate Estimate and the Zacks Consensus Estimate stand at $1.33. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.

Zacks Rank: Principal Financial carries a Zacks Rank #4 (Sell).

We caution against Zacks Rank #4 or 5 (Strong Sell) stocks going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Some stocks from the finance sector with the right combination of elements to surpass estimates this time around are as follows:

Axis Capital Holdings Limited (NYSE:AXS) is set to report fourth-quarter earnings on Jan 30. The stock has an Earnings ESP of +1.31% and a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Brown & Brown, Inc. (NYSE:BRO) has an Earnings ESP of +5.38% and a Zacks Rank #2. The company is slated to release fourth-quarter earnings on Jan 28.

Boston Properties, Inc. (NYSE:BXP) has an Earnings ESP of +0.33% and a Zacks Rank of 3. The company will announce fourth-quarter earnings on Jan 29.

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