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Business Restructuring Aids Ameriprise (AMP) Amid Cost Woes

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Ameriprise Financial (AMP - Free Report) remains poised for top-line growth on the back of its robust assets under management (AUM) balance and business-restructuring initiatives. Given a solid balance sheet, its capital deployment plans seem sustainable, through which it will enhance shareholder value.

However, significant outflows in the company’s Asset Management segment and steadily rising expenses are expected to hurt the bottom line to some extent, which makes us apprehensive.

Notably, the Zacks Consensus Estimate for AMP’s current-year earnings has been revised marginally lower over the past 30 days, reflecting that analysts are not optimistic regarding its earnings growth potential. Thus, the company currently carries a Zacks Rank #3 (Hold).

Over the past year, shares of Ameriprise have gained 3.1% against the industry’s decline of 29.1%.

 

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Looking at its fundamentals, the company’s net revenues (GAAP basis) witnessed a compound annual growth rate (CAGR) of 2.6% over the last six years (2016-2021). The momentum continued in the first quarter of 2022. AMP’s efforts to launch products are likely to keep supporting top-line growth in the quarters ahead.

Moreover, Ameriprise has grown inorganically and restructured its business from time to time to remain profitable by focusing on its core operations.

In November 2021, the company closed the deal to take over BMO Financial Group’s EMEA asset management operations, which will bolster its wealth and asset management businesses.

In July 2021, it closed a deal for RiverSource Life Insurance Company (its insurance subsidiary) with Global Atlantic’s subsidiary, Commonwealth Annuity and Life Insurance Company, to reinsure $7 billion of fixed deferred and immediate annuity policies.

In 2019, Ameriprise divested the Ameriprise Auto & Home business.

The above-mentioned initiatives are expected to further support revenue growth.

The company’s capital deployment activities look sustainable. In April 2022, Ameriprise announced a dividend hike for the 15th time since 2010. In January, its board of directors authorized an additional repurchase plan worth $3 billion (expiring on Mar 31, 2024). As of Mar 31, 2022, the company had $3 billion worth of shares left to be repurchased.

However, the company’s Asset Management segment, which remains one of the major sources of revenues (accounting for 27.5% of total adjusted operating net revenues in the first quarter of 2022), has been continuously witnessing significant outflows. While the segment witnessed overall net inflows in 2020 and 2021, outflows are expected to continue in the quarters ahead amid a tough operating backdrop. This will likely adversely impact the segment’s performance.

Moreover, while GAAP expenses declined in 2020, the same increased, witnessing a CAGR of 0.4% over the four-year period ended 2021. The uptrend persisted in the first quarter of 2022. Although the company’s initiatives to focus on cost management have resulted in controlled general and administrative expenses; overall costs are expected to remain elevated in the near term due to advertising campaigns, hiring, inflation and technology upgrades.

Stocks to Consider

A couple of better-ranked stocks from the finance space are Gladstone Capital Corporation (GLAD - Free Report) and Main Street Capital Corporation (MAIN - Free Report) . GLAD currently sports a Zacks Rank #1 (Strong Buy), whereas MAIN carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The consensus estimate for Gladstone Capital’s current fiscal year’s earnings has been revised 8.1% upward over the past 60 days. Over the past year, GLAD’s share price has rallied 9.9%.

Main Street Capital’s current-year earnings estimates have been revised 1.4% upward over the past 60 days. MAIN’s shares have lost 5.5% over the past year.


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