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Affiliated Managers (AMG) Up 10.2% Since Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Affiliated Managers Group, Inc. (AMG - Free Report) . Shares have added about 10.2% in that time frame, outperforming the market.

Will the recent positive trend continue leading up to the stock’s next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Affiliated Managers Beats Q4 Earnings as Costs Fall

Affiliated Managers reported fourth-quarter 2016 economic earnings of $3.80 per share, outpacing the Zacks Consensus Estimate of $3.70. Also, earnings were up 5.8% year over year.

Better-than-expected results were driven by lower operating expenses. Further, growth in assets under management (AUM) acted as a tailwind. However, lower revenues were an undermining factor.

Affiliated Managers’ economic net income (ENI) was $211.2 million, an increase of 7.9% from the prior-year quarter.

For 2016, economic earnings per share of $12.84 beat the Zacks Consensus Estimate of $12.74. Moreover, it was 3% above the 2015 level. ENI increased 2.4% year over year to $703.6 million.

Revenue Slump Offset by Lower Expenses

Total revenue for the quarter fell 6.7% year over year to $550.3 million. Also, the top line missed the Zacks Consensus Estimate of $560.3 million.

For 2016, total revenue was $2.19 billion, down 11.7% from prior year. Further, it was below the Zacks Consensus Estimate of $2.20 billion.

Earnings before interest, taxes, depreciation and amortization (EBITDA) totaled $289.7 million, up 10.1% from the year-ago quarter.

Total operating expenses declined 5.1% year over year to $376.5 million. The fall due to decline in all cost components.

As of Dec 31, 2016, total AUM grew 12.7% year over year to $688.7 billion. This reflected a net client cash inflow of $7.4 billion.

Strong Capital & Liquidity Position

As of Dec 31, 2016, Affiliated Managers had $430.8 million in cash and cash equivalents compared with $563.8 million as of Dec 31, 2015. Moreover, the company had $868.6 million of senior bank debt compared with $643.3 million as of Dec 31, 2015.

Shareholders’ equity as of Dec 31, 2016, totaled $3.62 billion, up from $2.84 billion as of Dec 31, 2015.

Outlook

Management projects ENI to be in the range of $13.75–$15.75 per share for 2017, considering actual market performance as of Jan 30, 2017 as well as assuming a 2% quarterly market growth beginning second-quarter 2017 and 13% contribution from the performance fees.

Management anticipates total interest expenses to be nearly $23 million in the first quarter, while it is likely to be $90 million for 2017.

Further, the company expects amortization expenses to be $38.5 million in the first quarter, up sequentially. The same is likely to be around $155 million in 2017.

Further, management envisions GAAP tax rate to be 33% for the first quarter and 2017. In addition, the cash tax rate is projected to be 21% for the first quarter and 23% for 2017.

Intangible-related deferred taxes are expected to be $20 million in the first quarter and $80 million for 2017.

Moreover, management expects the ratio of earnings before interest, taxes, depreciation and amortization (EBITDA) contribution at end-of-period AUM for first quarter to be around 13 basis points (bps) and 14.8 bps for 2017.

Also, the company projects other economic items to be around $1 million per quarter.

Based on the expectations of increased cash flow and the pacing of new investments, the company plans to repurchase nearly $200 million in the first half of 2017.

Further, the company expects weighted average share count to be nearly 56.4 million in 2017.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month. There have been two revisions lower for the current quarter. In the past month, the consensus estimate has shifted 7.79% downward due to these changes.

VGM Scores

At this time, Affiliated Managers' stock has a subpar Growth Score of 'D', however its Momentum is doing a bit better with a 'C'. Charting a somewhat similar path, the stock was allocated a grade of 'B' on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregte VGM Score of 'C'. If you aren't focused on one strategy, this score is the one you should be interested in.

Our style scores indicate that the stock is more suitable for value investors than momentum investors.

Outlook

Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. Notably, the company has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.


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