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Lazard (LAZ) Hurt by Advisory Revenues, Rising Net Outflows
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Lazard Ltd.'s (LAZ - Free Report) overdependence on financial advisory revenues and continued net outflows are major headwinds for the company. This, along with unsustainable capital deployments, is a concern. However, cost-containment measures and solid asset under management (AUM) balance offer some support.
The over-dependence on financial advisory revenues could affect the company’s financials. Financial advisory revenues contributed 52% to Lazard’s total operating revenues in first-quarter 2023. The metric declined in 2022 and first-quarter 2023, signaling weakness in the company’s revenue generation capacity.
The muted global merger and acquisition deal value and volumes, as well as a slump in capital market activities, are affecting advisory revenue growth. We estimate financial advisory revenues to decline 12.7% in 2023.
Lazard has been witnessing a steady increase in net outflows for the past several years. In the last four years (ended 2022), net outflows saw a compound annual growth rate of 23.1%, mainly due to outflows witnessed in equity asset class.
Nonetheless, in the first quarter of 2023, the company recorded net inflows of around $3 billion. A challenging operating backdrop, highlighted by equity outflows in emerging markets, is a hindrance for the near term. We anticipate net outflows to be $1.44 billion this year.
The company has hiked its dividend in the past and has a share repurchase plan in place. However, its payout rate and debt/equity ratio seem unfavorable compared with the broader industry’s averages. These, along with Lazard's volatile performance over the last few quarters, make us believe that its capital-deployment activities might not be sustainable.
Analysts also seem pessimistic regarding LAZ’s earnings growth prospects. The Zacks Consensus Estimate for 2023 and 2024 earnings has been revised 51.9% and 6% lower, respectively, over the past 60 days. Further, the company currently carries a Zacks Rank #5 (Strong Sell).
Over the past three months, shares of LAZ have declined 4.8% against the industry's upside of 4.9%.
Image Source: Zacks Investment Research
Despite the above-mentioned concerns, Lazard is well placed to grow organically, driven by a solid AUM balance. Further, given its strong financial flexibility, the company has a lesser likelihood of defaulting on interest and debt repayments, even if the economic situation worsens. These efforts are likely to support revenue growth going forward.
Finance Stocks Worth a Look
A couple of better-ranked stocks from the finance space are Artisan Partners Asset Management (APAM - Free Report) and Federated Hermes (FHI - Free Report) .
The Zacks Consensus Estimate for Artisan Partners' current-year earnings has been revised 3.4% upward over the past 60 days. Its shares have gained 34.4% over the past six months. Currently, APAM carries a Zacks Rank #2 (Buy).
Federated Hermes also carries a Zacks Rank #2 at present. The consensus mark for the company's 2023 earnings has been revised marginally upward over the past seven days. In the past six months, FHI shares have declined 0.8%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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Lazard (LAZ) Hurt by Advisory Revenues, Rising Net Outflows
Lazard Ltd.'s (LAZ - Free Report) overdependence on financial advisory revenues and continued net outflows are major headwinds for the company. This, along with unsustainable capital deployments, is a concern. However, cost-containment measures and solid asset under management (AUM) balance offer some support.
The over-dependence on financial advisory revenues could affect the company’s financials. Financial advisory revenues contributed 52% to Lazard’s total operating revenues in first-quarter 2023. The metric declined in 2022 and first-quarter 2023, signaling weakness in the company’s revenue generation capacity.
The muted global merger and acquisition deal value and volumes, as well as a slump in capital market activities, are affecting advisory revenue growth. We estimate financial advisory revenues to decline 12.7% in 2023.
Lazard has been witnessing a steady increase in net outflows for the past several years. In the last four years (ended 2022), net outflows saw a compound annual growth rate of 23.1%, mainly due to outflows witnessed in equity asset class.
Nonetheless, in the first quarter of 2023, the company recorded net inflows of around $3 billion. A challenging operating backdrop, highlighted by equity outflows in emerging markets, is a hindrance for the near term. We anticipate net outflows to be $1.44 billion this year.
The company has hiked its dividend in the past and has a share repurchase plan in place. However, its payout rate and debt/equity ratio seem unfavorable compared with the broader industry’s averages. These, along with Lazard's volatile performance over the last few quarters, make us believe that its capital-deployment activities might not be sustainable.
Analysts also seem pessimistic regarding LAZ’s earnings growth prospects. The Zacks Consensus Estimate for 2023 and 2024 earnings has been revised 51.9% and 6% lower, respectively, over the past 60 days. Further, the company currently carries a Zacks Rank #5 (Strong Sell).
Over the past three months, shares of LAZ have declined 4.8% against the industry's upside of 4.9%.
Image Source: Zacks Investment Research
Despite the above-mentioned concerns, Lazard is well placed to grow organically, driven by a solid AUM balance. Further, given its strong financial flexibility, the company has a lesser likelihood of defaulting on interest and debt repayments, even if the economic situation worsens. These efforts are likely to support revenue growth going forward.
Finance Stocks Worth a Look
A couple of better-ranked stocks from the finance space are Artisan Partners Asset Management (APAM - Free Report) and Federated Hermes (FHI - Free Report) .
The Zacks Consensus Estimate for Artisan Partners' current-year earnings has been revised 3.4% upward over the past 60 days. Its shares have gained 34.4% over the past six months. Currently, APAM carries a Zacks Rank #2 (Buy).
Federated Hermes also carries a Zacks Rank #2 at present. The consensus mark for the company's 2023 earnings has been revised marginally upward over the past seven days. In the past six months, FHI shares have declined 0.8%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.