AllianceBernstein Holding L.P.
(AB - Free Report
) and Invesco Ltd.
(IVZ - Free Report
) have market capitalization of $2.4 billion and $14.2 billion, respectively. These publicly-owned investment managers operate from the same region and are influenced by similar economic conditions.
The Zacks Industry Rank is #56 (top 22% of the 250 plus Zacks industries) for the industry to which these companies belong. Our back-testing shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.
The industry benefits from a stabilizing economy and improving interest rate scenario. In terms of price performance, AllianceBernstein’s shares have gained 10.1% in the past year, while Invesco’s shares have rallied 12.5%. Though both asset managers have similar business trends, thorough research of their financials will help pick the winner.
AllianceBernstein has a trailing 12-month Return on Equity (ROE) of 13.7% compared with the industry average of 12.9%. This shows that the company reinvests earnings more efficiently. Further, the stock is undervalued with respect to its price-to-earnings (P/E) and price-to-book value (P/B) ratios. It has a P/E ratio of 12.21 compared with the industry average of 13.35. Also, the company’s P/B of 1.67 is below the industry average of 1.78.
Additionally, AllianceBernstein’s debt/equity ratio is 0.00 compared with the industry’s average of 0.09, which implies no debt burden. It highlights the financial strength of the company in an unstable economic environment. Moreover, the company’s earnings for the current year are projected to be up 11.1%, while sales are likely to rise 6.8%.
Analysts are optimistic about the stock’s earnings prospects. Over the last 30 days, AllianceBernstein has witnessed two upward revisions (against no downward revisions) for 2017. The Zacks Consensus Estimate has moved up about 1% to $2.10 for the current year.
AllianceBernstein has a Value Score of A and VGM Score of A. The stock carries a Zacks Rank #2 (Buy). 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.
Invesco has a trailing 12-month ROE of 13% compared with the industry average of 12.9%. This suggests that the company is efficient in reinvesting its earnings.
However, its debt/equity ratio of 0.75 is higher than the industry average of 0.09. This reflects that the company has a relatively higher debt burden and will not be financially stable during turbulent economic conditions.
Nonetheless, the stock looks undervalued with respect to its P/B ratio of 1.69 compared with the industry average of 1.78.
Additionally, the company’s current-year earnings are projected to rise 19.1%, while sales are estimated to increase around 10%.
Also, analysts seem optimistic about the stock’s financial performance. For the current year, it witnessed eight upward revisions (against no downward revision) in the past month. As a result, the Zacks Consensus Estimate for 2017 has climbed 2.3% to $2.66.
Both AllianceBernstein and Invesco are undervalued shares and are well positioned in terms of ROE, Zacks Rank, VGM and Value Score. Though Invesco has better sales and earnings growth potential, no debt burden and more reinvestment potential make AllianceBernstein a better pick.
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