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On January 9, 2013, we reaffirmed our long-term Neutral recommendation on Ameriprise Financial Inc. (
- Analyst Report
based on its consistent assets under management (AUM) growth and robust capital deployment actions. However, elevated expenses and unsettling macro-economic factors are expected to remain a drag on its profitability in the near to medium term. Moreover, this financial services company retains a Zacks Rank #3 (Hold).
Why the Neutral Stance?
We have maintained this stance since none of the estimates moved upwards over the last 60 days. In addition, over the past four quarters, Ameriprise has delivered two positive and two negative earnings surprises with an average surprise of negative 3.2%.
The company is expected to announce its fourth quarter 2012 results on January 30. The Zacks Consensus Estimate for the quarter is pegged at $1.49 per share on revenue expectation of $2,567 million. The company had delivered better-than-expected third-quarter earnings on the back of augmented top line and lower expenses.
Further, a well-diversified portfolio compared with its industry peers along with powerful capital deployment actions are the positives for the company. Also, growth through acquisitions has helped it expand significantly and better serve the dynamic markets. The recent and most notable acquisition is the asset management business of Columbia Management from Bank of America Corporation ( BAC - Analyst Report ) in 2010. This acquisition has significantly pushed up the performance of Ameriprise’s retail mutual fund and institutional management businesses.
However, escalating expenses remain a major headwind for the company. Higher distribution expenses, general and administrative expenses, elevated interest and debt expense as well as bank conversion expenditure are expected to further increase its expenses, putting the bottom line under pressure. In addition, existing low interest rate environment and the ongoing outflows related to the integration of Columbia Management will keep Ameriprise’s financials under pressure in the near term.
The earnings ESP (expected surprise prediction) – the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate – for the company is 0.67%. This, coupled with its Zacks Rank of 3, indicates that the company will surely beat the Zacks Consensus Estimate.
Other Stocks to Consider
The other stocks in the banking sector that are performing well and are worth considering include AllianceBernstein Holding L.P. ( AB - Snapshot Report ) and Virtus Investment Partners, Inc. ( VRTS - Snapshot Report ) . Both of these companies carry a Zacks Rank #1 (Strong Buy).
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