J.P Morgan Comments On Principal Financial Group Following Earnings

According to a recent report from J.P Morgan, it maintains a cautious stance on Principal Financial Group PFG following 4Q10 results. The strong equity market and resumption of share buybacks are potential positive catalysts. J.P Morgan's outlook for trends in the 401(k) business is mixed, and the valuation seems excessive given PFG's returns. PFG reported 4Q10 operating EPS of $0.66, same as J.P Morgan's estimate, but below consensus of $0.68. Results included several unusual items, adjusted for which it estimates PFG would have earned $0.68. In addition to the items outlined by management, its ex. unusuals calculation adjusts for unsustainably strong specialty benefits margins. J.P Morgan reiterates its Underweight rating. PFG's valuation appears to already reflect expected ROE expansion as the stock trades at a premium to the life group despite below-average returns and in-line near-term EPS growth. While Principal appears cheap versus asset managers, JPM feels that the comparison is unjustified as the company's net flows do not seem to have the same leverage to a rising equity market. J.P Morgan has a $31 PT on PFG PFG closed Monday at $33.70