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Robust AUM Balance Aids SEI Investments (SEIC) Amid Cost Woes

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SEI Investments Company (SEIC - Free Report) , with its global presence, a diverse range of product offerings, strategic acquisitions, robust assets under management (AUM) balance and technological innovations, is well-positioned for growth. Rising demand for the SEI Wealth Platform (SWP) across financial institutions remains another positive.

However, elevated expenses are expected to hurt the company’s bottom line to some extent in the near term. SEIC’s increased exposure to fee-based revenues is concerning.

Thus, analysts have maintained a neutral stance toward the stock. Over the past seven days, the Zacks Consensus Estimate for SEIC’s 2022 earnings has been unchanged. The company currently carries a Zacks Rank #3 (Hold).

Over the past year, shares of SEI Investments have lost 9.5% compared with the industry’s decline of 24.3%.

 

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Looking at its fundamentals, SEI Investments’ revenues witnessed a compound annual growth rate (CAGR) of 6.5% over the last six years (2016-2021), with the momentum continuing in the first six months of 2022. Moreover, AUM witnessed a CAGR of 9.7% over the last four years (2018-2021), with the uptrend persisting in the first half of 2022.

The company’s diversified products and revenue mix, strong global presence, the acquisition of Atlas Master Trust (November 2021) and solid AUM balances reflect improving top-line prospects.

Technology is the backbone of SEI Investments’ businesses. The company’s primary business platform — Investment Processing — delivers its outsourced software and processing services through TRUST 3000 and the SWP. Revenues generated by these two are recognized under information processing and software servicing fees, which witnessed a CAGR of 2.6% over the six-year period between 2016 and 2021.

SEIC’s strategic acquisitions, including Oranj's cloud-native technology platform (March 2021), Finomial (October 2021) and Novus (November 2021), support its technological advancement efforts. The company launched Digital Account Open and Digital Model Management, which are available to independent advisors.

Recently, it launched SEI Data Cloud through a strategic partnership with Snowflake to address the financial services industry’s demand for more advanced data integration. These initiatives and constant innovations in software will likely help SEI Investments win clients and, thus, continue to support top-line growth.

SEI Investments continues to impress with enhanced capital deployment activities. In December 2021, the company hiked its semi-annual dividend by 8.1%. The company also has a share repurchase plan in place. This June, it increased its buyback authorization by $200 million. As of Jun 30, 2022, $221.91 million worth of shares were left to be repurchased.

Given the robust capital position, SEIC is expected to sustain its capital deployment activities, thereby continuing to enhance shareholder value.

However, its expenses witnessed a CAGR of 5.9% over the last six years (2016-2021). The rise was mainly due to an increase in compensation costs, and data processing and computer-related expenses. A similar trend continued in the first half of 2022. As the company’s operations are mainly technology-driven, costs related to the same are expected to continue rising, given the up-gradation of proprietary software and the development of new ones.

Also, the company expects inflationary pressure on personnel costs to continue “for the foreseeable future.” Thus, overall operating expenses are expected to remain elevated in the upcoming quarters.

Asset management, administration and distribution fees are the major revenue generators for SEI Investments. These comprised 73.1% of the company’s total revenues in the first six months of 2022. Such high dependence on fee-based revenues could adversely affect the company’s financials in the near term, as fluctuations in markets and foreign exchange translations and/or regulatory changes may hamper AUM growth.

Stocks Worth a Look

A couple of better-ranked stocks from the finance space are Cullen/Frost Bankers, Inc. (CFR - Free Report) and Bank OZK (OZK - Free Report) . At present, both CFR and OZK carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Over the past year, shares of Cullen/Frost Bankers have gained 18.3%, while those of Bank OZK have lost 5%.

Over the past 60 days, the Zacks Consensus Estimate for Cullen/Frost Bankers’ current-year earnings has been revised 4.1% upward, while the same for Bank OZK has moved 6.4% north.


In-Depth Zacks Research for the Tickers Above


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CullenFrost Bankers, Inc. (CFR) - free report >>

SEI Investments Company (SEIC) - free report >>

Bank OZK (OZK) - free report >>

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