On Jul 5, 2013, we downgraded our recommendation on Lazard Ltd. (LAZ - Free Report) to Underperform from Neutral. The downward revision was based on the company’s first-quarter 2013 adjusted earnings, which lagged the Zacks Consensus Estimate and reflected a dismal top-line performance.
Financial Advisory Revenues contributed substantially to Lazard’s total revenue comprising about 42% in first-quarter 2013. It is anticipated that Lazard will continue to rely on financial advisory fees for a substantial portion of its revenue for the foreseeable future, and a decline in advisory engagements or the market for advisory services would adversely affect its business, financial condition and result of operations. Notably, in first-quarter 2013, these revenues dropped 39% year over year.
Though operating expenses declined in first-quarter 2013 taking into account the ongoing cost-savings initiatives, it remained at elevated levels. Notably, operating expenses were significantly up on a year-over-year basis in 2012, primary contributors being a fourth-quarter 2012 charge aggregating $100 million related to the cost saving initiatives and higher levels of compensation and benefits expenses (up 16%). The continuation of such a trend is expected to affect the margin level of the company.
At the current level, asset management businesses are under cyclical and secular pressures, many of which have been aggravated by the financial crisis. These pressures include volatile markets and new regulatory restrictions. Though Lazard remains well positioned over the long term, given the ongoing macro headwinds, a limited upside is expected in the near term.
For Lazard, the Zacks Consensus Estimate for 2013 decreased 13.1% to $1.72 per share, over the last 90 days. For 2014, the Zacks Consensus Estimate declined 6.8% to $2.34 per share, over the same time frame.
Lazard is expected to release its second-quarter 2013 earnings on Jul 25, 2013. The Zacks Consensus Estimate for the second quarter is 32 cents per share. Zacks Earnings ESP (Read: Zacks Earnings ESP: A Better Method) for Lazard is -6.25% for the second quarter. This reduces the chances of a positive earnings surprise, though it carries a Zacks Rank #3 (Hold).
Other Companies to be Considered
Some investment companies that are worth considering include Fortress Investment Group LLC (FIG - Free Report) and SEI Investments Co. (SEIC - Free Report) with a Zacks Rank #1 (Strong Buy) while Ameriprise Financial, Inc. (AMP - Free Report) carries a Zacks Rank #2 (Buy).