Shares of Principal Financial Group Inc (NASDAQ:PFG) slipped 2.9% in Wednesday trading after BofA Securities moved the stock from Neutral to Underperform and lowered its price target to $95.00 from $98.00. The downgrade reflects concerns that operating income growth may slow over the coming 12 months following a period during which the company's valuation expanded sharply.
"Our downgrade comes with an expectation of decelerating operating income growth in the next 12 months following a period of significant multiple valuation increases. In early August last year, PFG recorded a trough P/E multiple on year-ahead consensus EPS forecasts of 8.2x and has since expanded by 33% to 10.9x as of yesterday’s close. Over the same time frame, life peers have seen their P/E multiples expand by 8-11%, while trad. asset managers P/E multiples expanded by 0-5%. Compared with both sectors, PFG shares now trade near the high ends of their relative trading ranges while the dividend yield forecast appears to be breaking below 3% for the first time since Feb. 2023."
The BofA analyst, Joshua Shanker, highlighted the contrast between Principal Financial's P/E multiple expansion and that of its life insurance and traditional asset management peers. According to the analyst's note, PFG's multiple rose from a low of 8.2x on year-ahead consensus EPS to 10.9x, a 33% increase over the referenced period. By comparison, Shanker said peers in life insurance saw P/E expansions of 8-11%, while traditional asset managers recorded increases in the 0-5% range.
Shanker also pointed to changes in the company’s expected dividend yield, stating that the dividend yield forecast appears to be dipping below 3% for the first time since February 2023. Those valuation and yield dynamics underpin BofA's revised view on the stock and its move to an Underperform rating.
In a separate analyst action, Piper Sandler's John Barnidge raised his price target on Principal Financial Group to $125.00 from $113.00 while retaining an Overweight rating on the shares. The Piper Sandler view represents a more bullish price target than BofA’s revised target, and the two firms now present materially different valuations and outlooks for the name.
Taken together, the notes from BofA and Piper Sandler show a divergence of analyst perspectives: one that is cautious given valuation expansion and yield compression, and another that remains constructive with a higher price target. The immediate market reaction was negative, as reflected in the stock's near 3% drop during the Wednesday session.