BOSTON (TheStreet) -- Goldman Sachs (GS) is following the pack on Wall Street in praising the better-than-expected results of superstar money manager BlackRock (BLK), but it's among the few researchers bullish on less glamorous Principal Financial (PFG).While BlackRock has grown to prominence by managing bond funds that draw institutions and wealthy individuals, Principal has targeted the broader retirement and insurance markets. BlackRock might have cachet, but Principal's shares are cheaper and will likely benefit from several recent acquisitions.
While Goldman is bullish on BlackRock, its favorite asset management play is Principal Financial Group ( PFG), which is a member of the bank's Conviction Buy List. Goldman has a $38 target on Principal, implying that the stock will rise 33%. Unlike with BlackRock, the rest of Wall Street has a less favorable outlook than Goldman. Just five analysts rate Principal "buy," while 13, or 65%, rank it a "hold" and two have "sell" recommendations. Principal is smaller than BlackRock, with a market capitalization of $9.2 billion, compared to BlackRock's $36 billion. It had $328 million of assets under management, at first quarter's end. Scheduled to report second-quarter results on August 2, Principal is forecasted to have grown adjusted earnings 15% to 73 cents. However, revenue is expected to have dropped 7.5% to less than $2.1 billion. Principal is a well-managed, dividend-paying business, though most analysts aren't impressed. It pays an annual dividend, based on operating performance, distributing 55 cents at the end of 2010, for a 2% yield. But, it hasn't been a performer on earnings. The stock corrected 5.2% and 4.3%, following the last two quarterly reports. Pending acquisitions of Finisterre Capital, HSBC Afore and Origin Asset Management should prove accretive to earnings. Principal has grown 12-month trailing sales and net income 2.1% and 0.6%, respectively, significantly less than goliath BlackRock's expansion. Thus, Goldman's optimism is contrarian. Still, the unloved asset manager looks cheap, selling at just 8.4-times forward earnings and 0.9-times book value, 35% and 69% industry discounts.
-- Written by Jake Lynch in Boston.
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