PFG Outperforms Industry, Trades at Premium: How to Play the Stock?

Shares of Principal Financial Group, Inc. PFG have gained 4.6% year to date (YTD), outperforming the industry’s growth of 1.9%. However, shares have underperformed the Finance sector and the Zacks S&P 500 composite’s return of 8.3% and 6%, respectively, in the YTD period.

The insurer has a market capitalization of $18.15 billion. The average volume of shares traded in the last three months was 1.2 million.

Expensive Valuation of PFG

The insurer’s shares are trading at a price-to-earnings multiple of 9.47, higher than the industry average of 8.68. Also, it has a Value Score of A.

PFG is also expensive compared to Enact Holdings, Inc. ACT, MGIC Investment Corporation MTG and Radian Group Inc. RDN.

PFG’s Encouraging Growth Projection

The Zacks Consensus Estimate for Principal Financial’s 2025 earnings per share indicates a year-over-year increase of 15.4%. The consensus estimate for revenues is pegged at $16.22 billion, implying a year-over-year improvement of 3.7%. 

The consensus estimate for 2026 earnings per share and revenues indicates an increase of 12.7% and 5%, respectively, from the corresponding 2025 estimates.

Target Price Reflects PFG’s Potential Upside

Based on short-term price targets offered by 13 analysts, the Zacks average price target is $85.31 per share. The average indicates a potential 6.8% upside from the last closing price.

Image Source: Zacks Investment Research

Factors Benefiting PFG Stock

Principal Financial’s revenue growth is expected to improve in the long run, riding on higher premiums and other considerations, fees and other revenues, and improved net investment income across its segments. 

Principal Financial continues to benefit from its strength and leadership in retirement and long-term savings, group benefits and protection in the United States, retirement and long-term savings in Latin America and Asia, plus global asset management, which helps it deliver solid operating earnings. 

PFG estimates solid revenue growth as well as margin expansion across all its segments over the long term. 

The Specialty Benefits Insurance business should continue to gain from record sales, strong retention and employment growth. Favorable claims, growth in the business and disciplined expense management should benefit its pre-tax operating earnings.

Strong institutional flows across equities, real estate and specialty fixed income, highlighting the value of diversified distribution through its institutional, retail and retirement channels, are likely to drive positive net cash flow.  

Principal Financial’s extensive distribution footprint, strategic buyouts and operational discipline should enhance the assets under management growth.

PFG boasts a strong capital position, with sufficient cash generation capabilities and liquidity. To reflect the business mix and risk profile, PFG revised the RBC target to a range of 375%-400%. For 2025, PFG remains well-positioned to deliver on enterprise long-term financial targets, with 9% to 12% growth in earnings per share and 75% to 85% free capital flow conversion.

PFG’s Distribution of Wealth

Principal Financial’s wealth distribution through share buybacks and dividend payments looks impressive. In the second quarter of 2025, PFG raised the dividend for the seventh consecutive quarter, aligned with the targeted 40% dividend payout ratio and demonstrated confidence in continued growth and overall performance. It was a 7% increase over the year-ago quarter and a 9% rise for the full year. It also boasts a solid dividend yield of 3.7%, higher than the industry average of 2.7%. The insurer continues to expect to deliver on the targeted 75% to 85% free capital flow for 2025.

PFG targets $1.4 billion to $1.7 billion of capital deployments in 2025. It intends to spend 35-45% of its net income on share buybacks and about 10% on strategic M&A activities to enhance capabilities and support organic growth.

Final Take on PFG

Principal Financial's financial stability and favorable growth estimates bode well for growth. PFG should benefit from strategic buyouts, strong retention, higher single premium annuity sales, effective capital deployment and positive net cash flow. 

Given the premium valuation, investors should wait for a better entry point for this Zacks Rank #3 (Hold) stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research