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