Principal Financial GroupPFG

Morningstar Rating

Stock Research and Analysis

by Alan Rambaldini

Principal Financial Group dominates the market for retirement services for small to medium-size businesses. Its business model offers one-stop shopping for retirement and insurance needs, leading to stickiness as both employers and employees choose Read more

Bulls Say

Principal is a leading retirement services plan provider with established relationships with the flourishing baby boomer generation.

Less than 20% of companies with fewer than 100 employees have 401(k) plans. Principal is a leader in this underpenetrated market.

Principal is a leader in the fast-growing Web-based "e-401(k)" market. These accounts are less expensive to administer and more profitable, even at small firms.

Principal boasts industry-leading retention, including 94% retention of employer assets and 52% retention of participant assets upon separation of service. Read more

Bears Say

Many firms, including Nationwide and T. Rowe Price TROW, are poised to compete with Principal in the 401(k) business. This increased rivalry may erode Principal's margins over time.

The international businesses do not benefit from scale as the domestic businesses do and may never achieve the same level of profitability. These are generally in emerging markets, which increases the risks Principal faces, including foreign exchange and nationalization risks.

Although they provide earnings stability, Principal's insurance businesses drag down the greater profitability of their asset management and accumulation division.

Principal's health insurance business suffers from negative growth and higher-than-expected loss ratios. A turnaround may take years.

Principal owns a significant number of structured securities and derivatives with value that is difficult to measure and performance in a stressed credit environment that is untested. Read more

Strategy

Principal targets small and midsize employers because they are less price-sensitive than larger employers. The firm then leverages its expertise in foreign countries with the greatest potential to market Read more

Management

CEO since May 2008, Larry D. Zimpleman has been with the company in a variety of capacities since 1999. Historically, Principal's compensation and ownership guidelines have aligned management's interests with those of shareholders. Overall, we are not Read more

Profile

Principal Financial Group offers an array of financial services, including retirement, investment, and insurance products. The firm is an industry leader in providing 401(k) Read more

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