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Lazard (LAZ) Hurt by Advisory Revenues, Rising Net Outflows

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Lazard, Inc.’s (LAZ - Free Report) overdependence on financial advisory revenues and continued net outflows are major headwinds for the company. This, along with unsustainable capital distributions, is a concern. Nonetheless, cost-containment measures and solid asset under management (AUM) balance offer some support.

The over-dependence on financial advisory revenues could affect Lazard’s top-line growth to some extent. Financial Advisory revenues contributed 55.6% to the company’s total operating revenues in 2023. We estimate the segment to contribute 54.4% to total revenues in the current year.

The metric declined 7.1% and 17.9% in 2022 and 2023, respectively, signaling weakness in the segment’s revenue generation capacity. Particularly, the muted global mergers and acquisitions deal value and volumes, as well as a slump in capital market activities, affected growth in the company's financial advisory revenues. It is anticipated that Lazard will continue to rely on financial advisory fees for a substantial portion of its revenues in the foreseeable future.

Though Lazard’s net outflows decreased in 2023, the company had witnessed a steady increase in its net outflows in the past. For the four-year period (ended in 2022), net outflows saw a compound annual growth rate of 23.1%, mainly due to outflows witnessed in equity asset class. We anticipate net outflows of $9.6 billion during 2024. Further, a challenging operating backdrop, highlighted by any equity outflows in the emerging markets, is a hindrance for the near term.

Lazard’s capital distribution activities make us apprehensive. As of Dec 31, 2023, a total of $200 million worth of share repurchase authorization was available under its share buyback plan. However, its payout rate and debt/equity ratio seem unfavorable compared with the broader industry’s respective averages. The company’s performance over the last few quarters was volatile. Hence, given these unfavorable factors, we believe that the capital distribution activities might not be sustainable.

Over the past year, shares of this Zacks Rank #4 (Sell) stock have gained 4.9% compared with the industry's growth of 9.9%.

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Despite the above-mentioned concerns, Lazard is well placed to grow organically, driven by its solid AUM balance. Cost-management efforts will aid its bottom line. 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.

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 4.5% upward over the past week. Its shares have gained 15.3% over the past three months. Currently, APAM sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Federated Hermes also flaunts a Zacks Rank #1 at present. The consensus mark for the company's 2024 earnings has been revised 1.1% upward over the past seven days. In the past three months, FHI shares have gained 12.6%.

See More Zacks Research for These Tickers

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Lazard, Inc. (LAZ) - free report >>

Artisan Partners Asset Management Inc. (APAM) - free report >>

Federated Hermes, Inc. (FHI) - free report >>

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