Principal Financial Group, Inc. (NYSE:PFG) and American Equity Investment Life Holding Company (NYSE:AEL) are both Financial companies that recently hit new highs. Many investors are wondering what to do with these names trading at such extreme levels. To determine if one is a better investment than the other, we will compare the two across growth, profitability, risk, return, dividends, and valuation measures.
Principal Financial Group, Inc. (NYSE:PFG) operates in the Life Insurance segment of the Financial sector. The company has grown sales at a 7.10% annual rate over the past five years, putting it in the medium growth category. PFG has a net profit margin of 12.40% and is more profitable than the average company in the Life Insurance industry. In terms of efficiency, PFG has an asset turnover ratio of 0.06. This figure represents the amount of revenue a company generates per dollar of assets. PFG’s financial leverage ratio is 16.25, which indicates that the company’s asset base is primarily funded by debt. Company’s return on equity, which is really just the product of the company’s profit margin, asset turnover, and financial leverage ratios, is 16.20%, which is better than the Life Insurance industry average ROE.
Principal Financial Group, Inc. (PFG) pays out an annual dividend of 1.96 per share. At the current valuation, this equates to a dividend yield of 2.77%. The company has a payout ratio of 29.30%. PFG’s current dividend therefore should be sustainable. Stock’s free cash flow yield, which represents the amount of cash available to investors before dividends, expressed as a percentage of the stock price, is 7.84. All else equal, companies with higher FCF yields are viewed as cheaper. Company trades at a P/E ratio of 11.58 , and is less expensive than the average stock in the Life Insurance industry. The average investment recommendation for PFG, taken from a group of Wall Street Analysts, is 2.50, or a hold.
Over the past three months, Principal Financial Group, Inc. insiders have been net buyers, dumping a net of -343,502 shares. This implies that insiders have been feeling relatively bearish about the outlook for PFG. Insider activity and sentiment signals are important to monitor because they can shed light on how “risky” a stock is perceived to be at it’s current valuation. Knowing this, it makes sense to look at beta, a measure of market risk. PFG has a beta of 1.73 and therefore an above average level of market volatility.
American Equity Investment Life Holding Company (NYSE:AEL) operates in the Life Insurance segment of the Financial sector. AEL has increased sales at a 14.30% CAGR over the past five years, and is considered a high growth stock. The company has a net profit margin of 7.90% and is more profitable than the average Life Insurance player. AEL’s asset turnover ratio is 0.06 and the company has financial leverage of 20.86. AEL’s return on equity of 10.20% is better than the Life Insurance industry average.
American Equity Investment Life Holding Company (AEL) pays a dividend of 0.26, which translates to dividend yield of 0.83% based on the current price. Stock has a payout ratio of 8.20%. According to this ratio, AEL should be able to continue making payouts at these levels. The company trades at a free cash flow yield of 15.2 and has a P/E of 10.98. Compared to the average company in the 562.88 space, AEL is relatively cheap. The average analyst recommendation for AEL is 2.60, or a hold.
American Equity Investment Life Holding Company insiders have sold a net of 0 shares during the past three months, which implies that the company’s top executives have been feeling bearish about the stock’s outlook. Finally, AEL’s beta of 2.53 indicates that the stock has an above average level of market risk.
Principal Financial Group, Inc. (NYSE:PFG) scores higher than American Equity Investment Life Holding Company (NYSE:AEL) on 7 of the 13 measures compared between the two companies. PFG has the better fundamentals, scoring higher on profitability, leverage and return metrics.