Principal Financial Group (PFG)

Total return at 5 years: 9.8%/year = 6.4% appreciation + 3.4% dividend. The target price ($150) is ex-dividend; the $21 in dividends collected over 5 years are added separately.

By both methods, the value today (DCF $300 · Multiples $139) exceeds the market price ($110).

Today — fairly valued: at $110 trades ~20.7% below its value discounted to today (~$139); the discount is positive but does not reach the margin of safety we require (≥38%).

At 5 years — En valor: the target price ($150) plus dividends yield between the 4% floor and the 10% average return — a reasonable return, though without the margin of a great investment.

The bridge: the return at 5 years exceeds the risk-free rate (4.5%) — but the discount does not reach the required margin of safety (≥38%). To require a 15% annual return, it would need to be bought at ~$89.

Educational / informational. Does not constitute investment advice.

The inverse approach: instead of projecting growth to obtain the value, the market price ($110) is taken as given and it solves for what annual owner-earnings growth would need to hold for 5 years for the present value —at the method's rate (4.5%, no-growth terminal)— to equal that price. It is the disconfirmation test: the expectations the price already pays for, contrasted against the method's projection.

The market discounts less growth (-13.4%/year) than we project (8.0%/year) → if the base case holds, there is margin: perception is more pessimistic than the estimated reality.

That growth implies ~$1 bn of owner earnings in year 5 (vs ~$3 bn of our base case). It recalculates if the DCF assumptions are edited.

A bank is valued on equity (P/E × common earnings + price/tangible book), not EV: deposits and debt are funding. It returns capital via dividend + buyback —the buyback reduces the share count, so earnings per share grow faster than aggregate earnings—. Total return adds the dividend collected along the way. In edit mode, the metric, shares, dividend, and exit multiple can be adjusted.

Year 0 is the trailing twelve months through June 2026, rebased by levels from the July 27, 2026 results release (Item 2.02) and reconciled against the XBRL instance of the 10-Q filed July 29, 2026. The metric is non-GAAP operating earnings net of taxes and of significant variances (US$2,029.4 million, +8% year over year versus the same period a year earlier, US$1,872.2 million) — the basis the company uses to assess recurring performance, cleaner than GAAP net income (which falls 24.6% year over year in 2025). Growth decelerates from 8% to 6% by year 5, within the 4-8% band for a diversified insurer with a fee component. The P/E exit multiple falls within the life and retirement insurance archetype's band [7,11]. The share count falls ~3.4% annually, the pace revealed by the quarter's diluted weighted-average shares (226.5 to 218.7 million year over year), the same in all three scenarios. The dividend starts at the current annualized rate (US$0.84 quarterly × 4, declared for 3Q26). Book value per share starts at US$56.58 at June 30, 2026 (equity available to common stockholders of US$12,142.8 million over 214.6 million shares, July 27, 2026 release), and year 0's return on equity (16.71%) is the trailing-twelve-month operating earnings over that same equity.

Today's multiple compresses on its own going forward as the metric per share grows (accelerated by the buyback, which reduces the share count). The exit multiple at 3 years is higher than the terminal at 5 years —at 3 years there is more growth still ahead—. Total return adds the dividend collected; the required return is applied to the base scenario.

They are valued separately, with their own rationale, and are not incorporated into the base or the verdict (they are excess return). When assigning them value — in Editmode —, the total with optionalities updates live, without moving the base.

The verdict, the base CAGR, and the margin of safety are always calculated on the base; optionalities do not alter them (with optionalities at $0 they do not move).

Each card fixes a required annual return and answers: if the business is worth $150 in 5 years, what is the maximum that can be paid today to obtain that return? Since it now trades at $110, the margin of safety is how much cheaper the market is than that maximum. The three thresholds: 4% covers inflation (the floor), 10% is the long-term average return, and 15% is the level of a great investment.

With a target price of $150 in 5 years plus $21 of dividends collected (the dividend adds to the return, not to the price) and a required return of 4.5% annually, the maximum to pay today is $139. Against the current market price ($110), the margin of safety is 20.7% (trades below the maximum → there is margin) and the total return at that price would be 9.8% annually.

• Multiple within the band. P/E of 12× within the 7-11 times range of the life and retirement insurance archetype, in the upper half given the return on capital.
• Limited margin of safety. At the market price, the base case's estimated return is +10% annualized, with a margin of safety of -24% versus the maximum price at the 15% hurdle.
• Dividend yield. Current dividend yield of 3.1% on the market price, with an 8% year-over-year increase in the quarterly dividend.
• Multiple over book value. The stock trades at a premium to its book value per share (US$56.58 at June 30, 2026), which is supported by a return on equity of 16.7%, above the 10% bar.

• Return on capital. 16.7% on equity available to common stockholders at June 30, 2026, in the 'excellent' tier of the quality scale (15-20%) and comfortably above the 10% bar.
• Earnings quality. Non-GAAP operating earnings net of significant variances ($2,029.4 million TTM) are more stable than GAAP net income, which fell 24.6% year over year in 2025 due to non-recurring items.
• Volatility from significant variances. Significant variances —variable investment income, reserves, actuarial assumption review— subtracted US$64.6 million after tax over the trailing twelve months (US$108.3 million a year earlier); the company separates them because it does not consider them extrapolable.
• Operating cash generation. Operating cash flow of US$5,012.0 million over the trailing twelve months, above GAAP net income (US$1,558.8 million), as in every fiscal year from 2023 to 2025; for an insurer, that flow includes the growth of policy reserves, so it does not measure owner earnings.

Annual levels from the official filing (10-K); the % over each bar is the year-over-year (YoY) growth vs the prior year.

Retirement and Asset Management monetize by volume × rate: accounts or assets administered multiplied by the fee or operating margin charged on that volume. Benefits and Protection monetizes through premiums and fees on employer groups and individual policies, with margin determined by the incurred loss ratio. Capital returned to shareholders (dividends + buybacks) was US$1,700.8 million in 2024 and US$1,585.3 million in 2025, equivalent to 104% and 85% of each year's non-GAAP operating earnings (US$1,640.5 million and US$1,865.5 million).

The % are the annual (year-over-year) growth: each year —historical and projected— vs the prior one; the TTM (trailing 12m) vs the TTM of a year ago, to avoid overlapping windows. The historicals are exact figures from the official filings; the projected years come from the year-by-year model (the intermediate years without their own series are interpolated between the anchors). The projected columns (+1y…+5y) are 12-month windows counted from the TTM close (30-jun-2026): the projection starts from the most recently reported data, not the fiscal year. The projected base is realistic and unbiased — the risk discount is applied at the end, via the required return. The rationale for each metric is in the (i).

• AUM growth. Assets under management of US$808,000 million, +7% year over year, though still with negative net cash flow (net outflows of US$14,400 million over the trailing twelve months).
• Retirement transfer deposits. US$9,000 million in the quarter, +30% year over year; they include, among other flows, pension risk transfer premiums, which were US$485.0 million in the quarter (US$444.0 million a year earlier).
• Retirement and Income Solutions International growth. Retirement and Income Solutions International AUM growing 18% year over year, with operating margin expanding 320 basis points.
• Underwriting below target range. The Specialty Benefits loss ratio (57.4% in the quarter) came in below the company's target range, so part of the growth in Benefits and Protection should not be extrapolated at that pace.

• Revenue diversification. Three segments with distinct dynamics (fees, single premium, traditional insurance) reduce dependence on a single market cycle.
• Market position in Specialty Benefits. Top U.S. group life insurer by contracts in force in 2024 according to LIMRA, with meaningful scale in dental and disability insurance.
• Regulatory barrier in pension risk transfer. The Department of Labor's requirement to purchase annuities from the «safest available» insurers leads sponsors to restrict their purchases to those with superior or excellent ratings.
• Dependence on alliances without majority control. A meaningful part of Asset Management's international growth depends on bank partners in which Principal holds an economic interest of 25% or less.
• Pricing pressure in asset management. The asset management industry faces structural fee compression, particularly in passive and fixed-income products.

• !Book value compounding+6%/yr · $58/share ex-AOCI
• ✓Float return (investment income)$4.9 bn on $113 bn of float

A traffic-light interpreted by the method (not generic): float (negative WC) adds up, capex is judged by incremental ROIC (malinvestment test), and a lender is not subjected to corporate solvency. The (i) shows the derivation of each number.

• Leverage. Debt to equity of 35.7% and debt to capitalization of 26.3% at June 30, 2026, up from 33.3% and 25.0% at year-end 2025 following the June 2026 senior notes issuance (at year-end 2024: 37.1% and 27.0%).
• Liquidity at the holding company. US$2,362.3 million of cash and liquid assets at the holding companies at year-end 2025, and US$1,600 million of excess and available capital at June 30, 2026 per the release.
• Financial strength ratings. A+ (A.M. Best), AA- (Fitch), A1 (Moody's), and A+ (S&P), all with stable outlook; the A.M. Best rating is the second-highest of the 13 levels on its scale.
• Regulatory capital not available. No risk-based capital (RBC) ratio for the regulated insurance subsidiaries is available in the extracted facts.

Who owns the shares — the alignment and whether there is a controlling shareholder.

• Management team experience. CEO with more than three decades at the company, including a prior role as chief financial officer; continuity in strategic leadership.
• Capital return discipline. Quarterly dividend raised to US$0.84 for the third quarter of 2026 (+8% year over year); in 2025 dividends (US$684.0 million) equaled 37% of non-GAAP operating earnings (US$1,865.5 million).
• Alignment via compensation. Executive compensation is tied to non-GAAP operating earnings and return on capital, the same metrics reported to the market.
• Insider ownership below 1%. Directors and executives as a group (21 people) held 2,435,535 shares as of March 16, 2026, less than 1% of the capital according to the proxy: direct equity commitment is limited.

• The quarter's GAAP net income falls 1% year over year (US$403.4 million versus US$406.2 million) due to a loss on discontinued operations (US$131.6 million), while non-GAAP operating earnings rise 12%: the GAAP headline understates how the ongoing business is performing.
• GAAP net income — affected by remeasurements of future policy benefit liabilities and embedded derivatives — fell 24.6% year over year in 2025, a headline that can be confused with non-GAAP operating earnings, which are far more stable.
• At the market price, the base case's estimated return (+10% annualized) already places it in the Fairly valued category, so much of the recent improvement in profitability and the buyback is already priced in.

No clear source of missing buyers or motivated sellers is identified: the market appears to be appropriately recognizing the margin and return-on-capital improvement of recent quarters. The expected return in the base case (+10% annualized) is consistent with the Fairly valued category, not with a significant-discount opportunity.

The annual return (CAGR at 5 years) in each scenario, with the total period return below — the margin of safety made visual: upside range wide, downside range narrow.

Even in the bear scenario, the return holds at +3%/year (+17% total): the margin of safety protects the downside. The bull (+16%/year, +106% total) exceeds it comfortably — a favorable asymmetry, with a narrow downside range and a wide upside range.

• Interest-rate sensitivity. Both a low, prolonged rate environment and rising rates materially affect the results of accumulation products and reserves.
• Sensitivity to capital markets. A decline in equity, bond, or real estate markets directly reduces the AUM/AUA on which fees are charged.
• Regulatory risk (PBR/RBC). Changes to the NAIC's principles-based reserve model, mandatory from 2026-2029, could produce more volatile capital levels.
• Geographic concentration in commercial mortgage loans. The commercial mortgage loan portfolio is concentrated in California, exposed to economic and catastrophe risks specific to that region.

Each thinker's analytical framework applied to our data.

• Buffett / Graham Quality + margin of safety

  A narrow moat and ROE 17% above the 10% bar, but the margin is limited (+21%) → excellent business at a fair price.

• Peter Lynch Growth at a reasonable price (GARP)

  A fast grower growing 8% at a PEG of 1.4 → reasonable for its growth.

• Joel Greenblatt Cheap and high-return (Magic Formula)

  Not applicable — the Magic Formula excludes financials and regulated businesses (EBIT/EV does not capture the operating leverage).

• Howard Marks Perception vs reality + cycle

  The price discounts -13% vs our 8%: perception is more pessimistic than reality, with an identified source of the discount.

• Seth Klarman Capital protection (bear scenario)

  Bear-scenario floor -1%/yr, bull-scenario ceiling +13%/yr over 5y → capital protected, asymmetry in your favor.

• Pat Dorsey Moat strength (Five Rules)

  A narrow moat, stable; sources: intangibles, efficient scale, cost advantage, switching costs → partially passes the Five Rules.

• Aswath Damodaran Expectations implied by the price

  Justifying the price requires discounting -13%, within what we project (8%) — the story squares with the numbers.