Thursday, FBR Capital Markets downgraded Principal Financial Group Inc. (PFG) shares to Market Perform from Outperform and lowered its price target to $26 from $32.
Analyst Randy Binner said that the driver of PFG's lower-than-average forecasted book value growth is higher-than-average credit losses which remain to be processed, as PFG has not been at the leading edge of life insurers in taking credit losses.
While the analyst's credit and capital analysis implies that PFG is adequately capitalized and can earn against credit exposures (CRE in particular) over time, it will likely hold book value growth back. The analyst lowered his price target to $26, from $32, which is 1.0x the current book value ex-AOCI.
The analyst has been using a sum-of-the-parts analysis, but given the relative overhang of credit losses restraining book value growth and the expectation that earnings will only grow in line with the peer group, he apply a book value multiple.
While asset managers should continue to work in the same "normal" market environment the analyst assumes for life insurers, the discrepancy between public asset manager multiples and recent private M&A activity leaves him cautious on embracing current asset manager multiples.
Currently, PFG is down $0.45 or 1.71% and trading at $25.89.
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