The Zacks Analyst Blog Highlights: Principal Financial Group, Assured Guaranty, Cigna, CNO Financial Group and United Parcel Service

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Feb 19, 2013, 09:30 ET

CHICAGO, Feb. 19, 2013 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include Principal Financial Group Inc. (NYSE:PFG), Assured Guaranty Ltd. (NYSE:AGO), Cigna Corp. (NYSE:CI), CNO Financial Group Inc. (NYSE:CNO) and United Parcel Service Inc. (NYSE:UPS).

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Here are highlights from Friday's Analyst Blog:

Rating Action on Principal Financial

Fitch Ratings reiterated the long-term Issuer Default Rating (IDR) of Principal Financial Group Inc. (NYSE:PFG) at 'A'. Concurrently, the rating agency reiterated the Insurer Financial Strength (IFS) at 'AA-' of Principal Financial's operating subsidiaries. The ratings carry a negative outlook.

The rating affirmations came on the back of Principal Financial's sturdy capitalization and continued solid operational performance. However, these positives are dwarfed by higher leverage and substantial exposure to direct mortgages and structured mortgage securities.

The outlook took into account the execution risk associated with the Cuprum acquisition, lower-than-expected fixed charge coverage and higher financial leverage. As of Dec 31, 2012, financial leverage was higher at 24%, an increase of 900 basis points (bps) year over year. The increase was largely due to the issuance of debt to fund the acquisition. Nevertheless, Chile-based AFP Cuprum compliments Principal Financial's strategy to widen its presence in the emerging marketplace. Also, fixed charge coverage was 7.1x in 2012, lower from nearly 7.9x in 2011.

Fitch, nonetheless, expects that Principal Financial will be able to deliver sustained profitability on its growing fee-based businesses. At the same time, the rating agency believes that continued low interest rate environment and competition will weigh on earnings improvement in the near term.

Rating affirmations or upgrades from credit rating agencies play an important part in retaining investors' confidence on the stock as well as maintaining creditworthiness in the market. We believe that the company's strong score with the credit rating agencies will help it write more business going forward.

The ratings might be subject to downgrade if investment losses escalate considerably, return on equity falls below 10%, fixed charge coverage ratio moves below 7x, risk-based capital ratio goes down below 375% or financial leverage moves above 25%.

Principal Financial currently carries a Zacks Rank #3 (Hold). Multi-line insurers Assured Guaranty Ltd. (NYSE:AGO) carries a Zacks Rank #1 (Strong Buy), while Cigna Corp. (NYSE:CI) and CNO Financial Group Inc. (NYSE:CNO) carry a Zacks Rank #2 (Buy) and appear impressive.

UPS Hikes Dividend

Leading package delivery company, United Parcel Service Inc. (NYSE:UPS) announced a dividend increase for its outstanding Class A and Class B shares. The board of directors announced an increase of 8.8% to 62 cents per share payable on Mar 12, to shareholders of record on Feb 25, 2013.

Further, the company has announced a share repurchase program of $10 billion that replaces the existing program that began in 2012. The new share repurchase program is without an expiration date.

UPS continues to return cash to shareholders in the form of increased dividends and share repurchases. It projects return on invested capital of at least 25% by 2014 and free cash flow to exceed 100% of net income each year. The company raised its quarterly dividend by 9.6% to 57 cents per share for fiscal 2012 from 52 cents in 2011. With respect to buybacks, the company raised its target for 2013 from $1.5 billion to $4.0 billion.

Despite the disappointing end to the $6.8 billion mega acquisition of Dutch shipping company, TNT Express and an economic setback that affected the demand trend, an increase in shareholders return underpins the company's strength with respect to its market position and ability to safeguard shareholders' value despite unfavorable market dynamics. As a result, the company continues to remain optimistic over its 2013 earnings results, which are expected to grow in the range of $4.80 to $5.06 per share, representing an increase of 6–12% from the 2012 level.

The company's financial strength drives growth through strategic investments, technology-backed operations and an enhanced worldwide network. UPS seems to look beyond the failure of the TNT deal and banks on smaller acquisitions that it carried out in Europe to expand its global footprint. In Dec 2011, the company acquired Italian pharma logistics provider Pieffe Group to enhance its position in North and South America, Europe and Asia. Following this, it acquired a Belgian e-commerce company, Kiala in Feb 2012.

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