By Sam Mamudi
Shares of Principal Financial Group Inc. (PFG) plunged more than
24% in Tuesday morning trading after the insurance firm revealed a
larger-than-expected fall in its book value due to asset
write-downs.
Wall Street analysts responded by cutting the company's price
target and lowering earnings expectations for the current
quarter.
Principal Financial, which announced fourth-quarter results late
Monday, said net income was down 98% from the year-ago period, to
$800,000 from $42.4 million. The firm was hit by net unrealized
capital losses of $16.08 a share, which led to a decline in its
book value to $7.45 a share, from $19.56 a share at the end of the
third quarter.
"The increase in unrealized losses as a percentage of book value
was more than twice the peer average for the fourth quarter," said
analysts at Friedman Billings Ramsey in a note on Tuesday. "The
wider-than-expected unrealized change clearly increases capital
raise concerns," they said, though they noted that Principal had
raised its capital buffer to $800 million.
"Potential for a capital raise cannot be ignored as management
continues to underestimate strain from (its) investment portfolio,"
Citigroup analysts wrote in a report of their own.
In recent trading, Principal Financial shares were down 24.7% to
$12.83 The shares are down nearly 77% in the past 12 months.
FBR analysts said corporate debt was one of the main causes for
the unrealized losses. Net unrealized losses at Principal are now
at $4.6 billion, said the analysts, up from $2.5 billion at the end
of the third quarter.
"The majority of this change was related to bank and
financial-debt unrealized losses of $980 million," said the FBR
analysts.
J.P. Morgan analysts said they "remain cautious on Principal
given its high earnings exposure to equity-sensitive businesses,
poor life and health fundamentals, and significant commercial real
estate holdings." They added, "Our long-term view on the 401(k)
business remains positive, but we are cautious on growth in
2009."
J.P. Morgan cut its price target for Principal to $14 from $21.
It lowered its estimated first-quarter earnings outlook to 80 cents
a share from 85 cents.
FBR analysts cut their price target for the stock to $13, from
$21. They now expect first-quarter earnings of 65 cents a share,
down from 73 cents a share.
FBR rates the stock as market perform, while J.P. Morgan has it
underweight.
Meanwhile, Citi analysts maintained their $25 a share target,
but they also reduced their first-quarter earnings estimate to 75
cents a share from 79 cents a share.
"Fourth quarter [results were] generally in line, but book value
decline [is] a growing concern," the Citi analysts said.
Principal's fourth-quarter operating earnings, which exclude net
realized investment gains and losses, were $179 million, or 69
cents a share. It was expected to make 69 cents a share, according
to the average estimate of 13 analysts in a FactSet Research
survey
-Sam Mamudi; 415-439-6400; AskNewswires@dowjones.com