On Apr 5, 2013, we reaffirmed our long-term Neutral recommendation on Ameriprise Financial Inc. (AMP). Our decision is based on its robust capital deployment actions and strong liquidity position. However, escalating expenses and unsettling macroeconomic factors are expected to remain a drag on its profitability in the near to mid term.
Why the Neutral Stance?
Over the past 60 days, there was a marginal upward estimate revision for 2013. Further, estimates for 2014 have slightly improved over the same period. In addition, over the past 4 quarters, Ameriprise has delivered 3 positive earnings surprises with an average beat of 1.8%. However, it carries a Zacks rank #2 (Buy).
Further, the Zacks Consensus Estimate for first-quarter 2013 is pegged at $1.56 on revenue expectations of 2,612 million. The company had delivered better-than-expected fourth-quarter earnings on the back of augmented top line, partially offset by higher expenses.
A well-diversified portfolio compared with its industry peers along with powerful capital deployment actions are the positives for the company. Also, growth through acquisitions has helped it expand significantly and better serve the dynamic markets. The recent and most notable acquisition is the asset management business of Columbia Management from Bank of America Corporation (BAC) in 2010. This acquisition has significantly elevated the performance of Ameriprise’s retail mutual fund and institutional management businesses.
However, escalating expenses remain a major headwind for the company. Although general and administrative expenses and interest and debt expenses have declined in 2012, distribution expense has increased from 2011. Though the advertising campaign and technology upgrades will be beneficial for Ameriprise in the long run, swelling expenses may prove harmful for its profitability. In addition, the existing low interest rate environment and the ongoing outflows related to the integration of Columbia Management will keep Ameriprise’s financials under pressure in the near term.
Other Stocks to Consider
Other stocks that are performing better in the same sector include Apollo Global Management, LLC (APO) and SEI Investments Co. (SEIC). Both these companies carry a Zacks Rank #1 (Strong Buy).
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