Moody’s Investors Service, the credit rating arm of Moody's Corporation (MCO), is reviewing Lazard Ltd.’s (LAZ) Ba2 corporate family rating and Ba2 senior unsecured debt rating for an upgrade. An improvement in Lazard’s debt to EBITDA ratio to 3.2x in 2013 from 4.8x in 2012, along with strong performance of the financial advisory as well as asset management businesses, has prompted Moody’s to mull over reviewing the rating.
Lazard is a leading financial advisory and asset management firm operating in 41 cities, spread over 26 countries in North America, Europe, Asia, Australia, Central and South America.
The company reported first-quarter 2014 adjusted earnings of 61 cents per share on May 1, comfortably beating the Zacks Consensus estimate of 55 cents. Moreover, this compares favorably with 28 cents earned in the prior-year quarter. Strong results in the first quarter were driven by robust top-line performance, primarily aided by a rise in asset management and financial advisory revenues. Total revenue generated from asset management and financial advisory businesses increased 9% and 64% to $262.3 million and $275.5 million, respectively, from the prior-year quarter. The company also boasted a sound capital position during the quarter. The rating upgrade will involve evaluation of the sustainability of the improved performance.
Moody’s Review Focus
For reviewing the current rating, Moody’s will primarily focus on the capability of Lazard’s financial advisory and asset management businesses to generate retained earnings. Notably, higher retained earnings reflect higher creditworthiness. The sustainability of cost containment measures will also be judged.
Apart from these, Lazard’s overall financial policies, including balance sheet management, financial flexibility, cash reserve position and its distribution commitments will be assessed by Moody’s.
Lazard currently has a Zacks Rank #3 (Hold). Some better-ranked investment managers include Cohen & Steers Inc. (CNS) and Woori Finance Holdings Co., Ltd. (WF). Both these stocks sport a Zacks Rank #1 (Strong Buy).
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