Following the repurchase of 12% ownership stake from Nomura Holdings, Inc. (NMR), the share price of Fortress Investment Group LLC (FIG), the first publicly listed investment manager in the U.S., jumped 6.01% to $8.47 on Thursday. Fortress bought back around 60.6 million Class A shares for $363.4 million or $6.00 per share.
However, mutually both companies will strategically continue to maintain their business relationship. The transaction will be beneficial for Fortress’ shareholders and will meet Nomura’s corporate objectives of shedding the stake.
Previously, in Dec 2006, Nomura purchased 15% stake in Fortress for $888 million or $16.12 per share with the aim of selling Fortress’s products in Asia. However, to meet the new Basel III banking regulations, which require holding more capital to reduce risks, banks have moved to shedding their non-core operations. Therefore, for its corporate benefit, Nomura disposed its stake in Fortress.
With Nomura’s investment, Fortress was benefited strategically with its expertise which significantly aided the latter’s growth. Therefore, continuing its relationship with Fortress, Nomura will come up with investment banking services for Fortress.
Notably, over the last 14 months, Fortress has repurchased 112 million shares for $543 million, thereby increasing shareholders’ value. We look forward to Fortress’ consistent organic growth, expense management and a strong balance sheet.
Following such moves by Fortress, the Zacks Consensus Estimate for 2014 has increased 3.4% to 90 cents per share, over the last 30 days. Yet, our proven model does not conclusively show that Fortress is likely to beat the Zacks Consensus Estimate in the fourth quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy) or at least 2 or 3 for this to happen. Unfortunately, this is not the case here as elaborated below.
Zacks ESP: The Earnings ESP for Fortress is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at 20 cents.
Zacks Rank: Fortress’ Zacks Rank #1 (Strong Buy), however, increases the predictive power of ESP. That said, we also need to have a positive ESP to be confident of an earnings surprise call.
Fortress is scheduled to release fourth-quarter 2013 results on Feb 27.
Some investment managers worth considering include Waddell & Reed Financial, Inc. (WDR) and Lazard Ltd. (LAZ), both with a Zacks Rank #1.