On Jun 20, 2014, we issued an updated research report on Lazard Ltd. (LAZ). This asset manager’s diverse footprint, top-line performance and cost containment initiatives position it favorably in the long run. Moreover, Lazard’s capital deployment efforts are expected to further enhance investors’ confidence in the stock. Yet, the sluggish macroeconomic environment and stringent regulations will likely put Lazard’s profitability under pressure in the near term.
Organic growth remains a key strength at Lazard, as reflected by its revenue growth story. Operating revenues grew at a CAGR of 3.9% over the last three years (2011–2013). Moreover, revenues increased 31% year over year in first-quarter 2014. We believe the company is well positioned to maintain this trend going forward.
The company is diligently working on its cost containment measures. Total annual savings of about $160 million is anticipated. Two-third of the expense savings is realized in 2013 and the full impact of the savings is expected in 2014. These measures are expected to improve margins, which are targeted at 25% in 2014, while boosting the company’s long-term growth prospects.
Lazard exhibited a decent performance in the last four quarters as evident from its earnings history. It posted positive earnings surprises in the last 4 quarters with an average beat of 30.63%.
The company reported first-quarter 2014 adjusted earnings of 61 cents, easily beating the Zacks Consensus Estimate of 55 cents by 10.91%. Moreover, adjusted operating revenues came in at $540.2 million, up 31% year over year.
Lazard is an asset for yield-seeking investors due to its strong capital deployment activity. During first-quarter 2014, Lazard returned $225 million to shareholders. Recently, in Jan 2014, Lazard announced a 20% increase in its quarterly cash dividend. Such steps are bound to boost investors’ confidence.
At the current level, asset management businesses are under cyclical and secular pressures, which have been aggravated by the financial crisis. These pressures include volatile markets and new regulatory restrictions. Though Lazard remains well positioned over the long term, given the prevailing macroeconomic headwinds, a limited upside is expected in the near term.
Lazard currently carries a Zacks Rank #3 (Hold).
Key Picks from the Sector
Some other investment managers worth considering include Woori Finance Holdings Co., Ltd. (WF) with a Zacks Rank #1 (Strong Buy), while Ameriprise Financial, Inc. (AMP) and BlackRock, Inc. (BLK) carry a Zacks Rank #2 (Buy).