Though benefits from a stabilizing economy and gradually-improving interest-rate scenario had positioned the investment-management industry well, investment managers might have been affected by the Fed’s rate cuts in 2019, along with lower expectations for GDP growth and inflation despite a solid labor market. However, the central bank kept rates unchanged at its latest meeting and has hinted at a pause in rate cuts for this year which might benefit the industry in the days ahead.
Additionally, most investment managers have waived off majority of their fees with the rates rising since 2016. This decline in fee waivers has aided companies’ top-line growth. Moreover, most asset managers recorded solid revenue growth in the first nine months of 2019, backed by increase in assets under management (AUM), despite escalating compliance and technology costs.
Performance of equity markets remained favorable in 2019 as reflected by the nearly 29% growth of the S&P 500 Index which might have resulted in a higher AUM.
Therefore, we are focusing on two investment managers — Federated Investors (FII - Free Report) and Ameriprise Financial, Inc. (AMP - Free Report) .
Federated, with a market cap of $3.34 billion, is a publicly-owned investment manager providing services to its clients, and investing in public equity and fixed income markets globally. Ameriprise operates as a provider of various financial products and services to individual and institutional clients in the United States and globally, and has a market cap of $21.68 billion.
Federated currently carries a Zacks Rank #2 (Buy), with a Value Score of C, while Ameriprise carries a Zacks Rank of 2, with a Value Score of A. Our research shows that stocks with a Value Score of A or B, when combined with a Zacks Rank #1 (Strong Buy) or 2, offer the best upside potential.
You can see the complete list of today’s Zacks #1 Rank stocks here.
Though both asset managers have similar business trends, deeper research into the financials will help decide which investment option is better.
Both asset managers have outperformed the industry (up 9.8%), in the past year. While shares of Federated have gained 29.1%, Ameriprise’s stock climbed 47.4%. So, Ameriprise performed better than Federated.
Both companies have been deploying capital in terms of dividend payments to enhance shareholder value. Federated has a current dividend yield of 3.23%, while Ameriprise has a dividend yield of 2.32%.
As compared with the industry’s average of 2.23%, shareholders of Federated gain more.
Ameriprise has debt-to-equity ratio of 0.80 as compared with the industry average of 0.25. But, Federated, with ratio of 0.24, has an edge over Ameriprise.
Return on Equity (ROE)
ROE is a measure of a company’s efficiency in utilizing shareholders’ funds. ROE for the trailing 12-months for Federated and Ameriprise is 27.84% and 37.5%, respectively. While both stocks scored above the industry’s level of 12.39%, Ameriprise reinvests its earnings more efficiently.
Earnings Estimate Revisions & Growth Projections
The Zacks Consensus Estimate for 2019 and 2020 earnings of Federated moved north 0.4% and 2.1%, respectively, over the last 30 days. The same for Ameriprise remained unrevised, during the same time frame.
Moreover, Federated’s 2019 and 2020 earnings are projected to jump 18.8% and 11.1% year over year, respectively. For Ameriprise, the Zacks Consensus Estimate is pinned at $16.25 for 2019, reflecting a year-over-year increase of 8.8% and for 2020, the earnings estimate shows a 10.3% year-over-year jump.
Hence, Federated reflects better earnings growth prospects.
Sales for Ameriprise for 2020 are projected to be up 1.7% year over year to $12.8 billion. For Federated, the Zacks Consensus Estimate is pegged at $1.5 billion for 2020, reflecting year-over-year growth of 9.7%.
Therefore, Federated has an edge here as well.
Our comparative analysis shows that Federated is better positioned than Ameriprise when considering earnings and sales growth expectations, dividend yield and leverage ratio. Ameriprise wins on price performance, reinvesting potential and valuation.
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