February 5, 2008 / 7:28 PM / in 10 years

UPDATE 1-Principal Financial, Lincoln National down on results

(Adds Lincoln National’s results)

Feb 5 (Reuters) - Shares of life and health insurers Principal Financial Group Inc PFG.N and Lincoln National Corp (LNC.N) took a hit on Tuesday, a day after the companies reported weak quarterly profit.

Principal Financial fell as much as 14 percent to a new year-low, as the company’s fourth-quarter operating earnings of 86 cents a share fell short of Wall Street view by 15 cents, hurt by write-downs on investments in repackaged subprime mortgages.

Lincoln National stock also fell as much as 8 percent, after it reported income from operations of $1.16 a share, missing Wall Street view by 20 cents, primarily due to losses related to sale of certain media assets. In a regulatory filing on Tuesday, Principal Financial also said it sees little improvement in credit market conditions in 2008.

It forecast losses of $60 million to $70 million in the corporate and other segment, and expects its health division to earn about $35 million to $40 million for 2008.

“Principal’s health segment continues to erode and it does not appear that the company’s efforts to stabilize this segment have resulted in any near-term stability,” Goldman Sachs analyst Thomas Cholnoky wrote in a note dated Feb 4.

The brokerage said it had recently downgraded Principal to “sell” due to its large equity market exposure.

Lincoln National expects income from operations in the low to mid $60 million range for investment management segment, while in the UK segment, it sees earnings in the low $40 million range.

“We expect the stock to be under pressure given the earnings miss and the likely downward EPS revisions,” Cholnoky said in a note to clients dated Feb. 4.

Cholnoky has a “neutral” rating on the stock.

In the last 12 months, Lincoln National shares have lost nearly 20 percent of their value, while Principal Financial’s shares have traded at par with the Standard & Poor’s life and health insurance sub-industry index .GSPLIFE that is down about 5 percent.

Shares of Principal Financial were trading down $5.21 at $54.61 in afternoon trade, while shares of Lincoln National were down $3 at $52.30. (Reporting by Shikhar Balwani, Sweta Singh in Bangalore; Editing by Amitha Rajan, Anil D’Silva)

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