Ameriprise Financial, Inc. (AMP - Free Report) and AllianceBernstein Holding L.P. (AB - Free Report) , the two investment managers, have market capitalization of $19.8 billion and $2.2 billion, respectively. Being based in the same region, both companies are influenced by the similar economic environment.
The Zacks Industry Rank is #88 (top 33% of the 250 plus Zacks industries) for the industry, which these two companies belong to. Our back-testing shows that the top 50% of the Zacks ranked industries outperforms the bottom 50% by a factor of more than two to one.
The benefits from a stabilizing economy and gradually improving interest rate scenario have positioned the industry well. In terms of price performance, Ameriprise shares have gained 32.9% in the past year while AllianceBernstein shares have rallied 6.2%.
Though the business of both the asset managers is almost similar, let’s dig deeper into to the financials, before deciding which is a better investment option.
Ameriprise has a trailing 12-month Return on Equity (ROE) of 26.54% compared with the industry average of 12.24%. This suggests that it is more efficient in reinvesting its earnings.
However, its debt/equity ratio, which stands at 0.88, is significantly above the industry average of 0.07. This reflects that the company has a relatively higher debt burden and will not be financially stable in adverse economic conditions.
Nonetheless, the stock looks undervalued with respect to its price-to-earnings (P/E) ratio. It has a forward P/E ratio of 12.08 compared with the industry average of 12.48.
Additionally, the company’s current-year earnings are projected to grow 19.5% while sales are expected to increase 2.9%.
Also, analysts seem optimistic about the stock’s financial performance. For the current year, over the past 60 days, the stock has witnessed three upward revisions (against no downward revision). As a result, the Zacks Consensus Estimate for 2017 rose 4% to $11.23.
Ameriprise currently carries a Zacks Rank #2 (Buy). Also, it has a Value Score of A and a VGM Score of C. Our research shows that stocks with a Value Score and/or VGM Score of A or B when combined with a Zacks Rank #1 (Strong Buy) or 2 offer the best upside potential.
AllianceBernstein has a trailing 12-month ROE of 13.28% compared with the industry average of 812.24%. This shows it reinvests its earnings more efficiently.
Further, the stock looks undervalued with respect to its P/E and P/B ratios. It has a P/E ratio of 11.20 compared with the industry average of 12.48. Also, the company’s P/B of 1.51 is below the industry average of 1.73.
Also, AllianceBernstein does not have any debt, indicating that the company will be in an advantageous position in stressed economic conditions. Moreover, its earnings for the current year are projected grow 10.3% while sales growth is estimated to be 6.5%.
Analysts seem optimistic about the stock’s earnings prospects. Over the last 60 days, the stock has witnessed two upward revisions (against two downward revisions) for 2017. The Zacks Consensus Estimate increased 2.5% to $2.09 for 2017.
AllianceBernstein has a Value Score of A and VGM Score of B. Further, the stock carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Both Ameriprise and AllianceBernstein look well positioned in terms of their ROE, Zacks Rank and Value Score. However, AllianceBernstein seems to be a better pick based on better sales growth potential, lower P/B ratio compared with industry, no debt and favorable VGM Score.
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