Wells Fargo cautious on Principal Financial as Goldman says buy
This morning, Goldman Sachs analyst Alex Scott upgraded Principal Financial (PFG) to Buy on his view that the company has potentially positive earnings growth drivers and the stock has limited downside risk.
Meanwhile, his peer at Wells Fargo downgraded the stock to Market Perform, arguing that its current valuation already reflects the relative growth in earnings derived from the company’s niche of fee-based businesses, aided by healthy equity market performance.
BUY PRINCIPAL FINANCIAL
In a research note to investors this morning, Goldman Sachs‘ Scott upgraded Principal Financial to Buy from Neutral after his work suggested a number of potentially positive earnings growth drivers.
The analyst noted that he sees organic growth in the Spread and International segments, upside to estimates driven by margins, potential for inorganic growth through deploying excess capital, and a possibility that the pension partnership with the China Construction Bank will be finalized in 2018.
Nonetheless, Scott pointed out that he believes the company could experience some pricing pressure within the Specialty Benefits segment during the year, but the improved growth related to tax reform and scale positions the segment well. The analyst also raised his price target on the shares to $80 from $71.
MOVING TO THE SIDELINES
Conversely, Wells Fargo analyst Sean Dargan downgraded Principal Financial to Market Perform from Outperform, with a $79 price target, saying the stock’s valuation already reflects the relative growth in earnings.
While the analyst acknowledged that Principal’s earnings per share will benefit from tax reform, like all companies under his coverage, #Dargan noted that its push to show growth in spread earnings via pension risk transfer exposes the company to “greater longevity risk,” which deserves a lower multiple than “pure” spread earnings.
The analyst told investors that he now prefers Voya Financial (VOYA), pointing out that the company should look more like Principal over time after shedding its capital-intensive annuity business. Furthermore, Dargan argued that he sees more upside in Voya at current valuation levels.
This article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility.