Question

Analysis of Principal Financial Group

-Comment on the company’s price history

-Comment on prospects of the industry

-Estimate the company’s risk measures (beta, volatility)

-Estimate the company’s CAPM return and make a buy/sell recommendation?

Answer 1

The compmay'sprice history had been good except for the recent three months where almost every stock has seen a meltdown due to Noble Covid - 19.

The snapshot below of the stock prices had been taken from Yahoo finance:

52 week max is 60 and min is 32.

Prospects of the industry:

• Strong, robust and good
• The industry is witnessing an unprecedented demand for long-term savings solutions. The key drivers being:
  • Rising population of middle class globally
  • Governments becoming increasingly fiscally constrained
  • The retirement age of U.S. Baby Boomers is fast approaching
  • Need for greater asset accumulation among Echo Boomers
  • Need of personal responsibility has arrived

Company's risk measures:

• Beta: 1.62 (based on 5 year data and available on yahoo finance)
• Moderately volatile; annual standard deviation is around 5%

Company's CAPM retrun = Risk free rate + beta x Market risk premium = 4% + 1.62 x 4.5% = 11.29%

Overall recommendation : Buy