Principal Financial

Principal Financial Group Inc receives a 3-star quantitative star rating, illustrating our stance that this share class is a balanced choice, but prudent investors should consider looking elsewhere. The stock currently trades at a minor 2% discount to our quantitative fair value estimate of $114.35 per share; however, some caution is warranted due to this estimate's medium uncertainty rating.

The company's profitability increases our valuation estimate. Highly profitable companies are often more resilient in recessions and are likely to generate stronger future cash flows for shareholders. Reflecting the firm's profitability is its earnings yield of 6.1%, which falls in the top 40% globally. This suggests that it is generating substantial earnings relative to its share price, which contributes to our view that shares are cheap.

Conversely, the company's valuation metrics are potentially concerning. A company's valuation metrics provide insights into the market's expectations for its future growth and profitability. The firm's enterprise value to EBITDA ratio of 38.9, for example, sits in the top 20% globally. This suggests that the value of its enterprise value, or the value of its shares and debt, is a high multiple of the generated EBITDA. Despite our favorable price/fair value ratio, this characteristic is a negative attribute.

In addition to the aforementioned drivers, our model considers momentum as part of its comprehensive analysis. This share class has outperformed the broader universe over the past year. While we believe the stock is undervalued, this outperformance had a negative impact on our valuation estimate.

The company's quantitative economic moat rating of none suggests any excess returns could erode quickly as competition arrives. Additionally, the firm's moderate financial health score suggests it is acceptably positioned against adverse economic circumstances.