Ameriprise: Value Trap or Guru Bargain?
- By Jonathan Poland
Ameriprise Financial Inc. (AMP) was spun off of American Express (AXP) in 2005 and has since grown into a sizable asset and wealth manager with north of $900 billion in assets under management. Asset and wealth management makes up 70% of revenue, with insurance and fixed income bringing in the remainder.
This network is very lucrative, generating $1.7 billion in net income ($11.45 per share) on $12.5 billion in sales. Both numbers have grown significantly since 2008's housing crisis with sales up 78% and profit up 140%. The company pays out $3.39 (2.33%) in annual dividends, which have grown by over 400% in the last decade.
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The intrinsic value of AMP
Guru investors Jeremy Grantham (Trades, Portfolio), Steven Cohen (Trades, Portfolio), George Soros (Trades, Portfolio), Mario Gabelli (Trades, Portfolio) and Ray Dalio (Trades, Portfolio) have taken small positions in the stock and, on the surface, it looks like the right move. Compared to other big asset managers, Ameriprise is enjoying a higher multiple than it deserves, especially as more investors move away from traditional financial advisors and toward artificial intelligence platforms that can mimic and beat the S&P 500 for a fraction of today's fees.
For example, BlackRock (BLK), the world's largest asset manager, has $6.3 trillion in assets under management and a $76 billion market capitalization. While it generates just slightly more in revenue per year, BlackRock crushes Ameriprise on net income.
Ameriprise
Assets managed: $875 billion
Total revenue: $12.5 billion
Net income: $1.7 billion
Market cap: $21.8 billion
BlackRock
Assets managed: $6.3 trillion
Total revenue: $13.3 billion
Net income: $5.4 billion
Market cap: $76 billion
Currently, BlackRock is priced at 1.2% of its total assets under management, while Ameriprise trades at 2.4%. If the stock was valued on par with BlackRock, it would be 50% lower.
Similar to other wealth management companies, Ameriprise had decent growth from the previous year but results are flat over the past several quarters. Additionally, the stock price has lagged the S&P in the last five years - a trend I think will continue. For the most recent quarter, the company reported net income of $462 million, or $3.10 per diluted share, on $3.2 billion of net revenue. It is still expected to earn up to $16 per share by the end of 2019. If the price multiple expands to 15 times, the price could reach $240. But if it stays at 10 times, the price stays around $160. I think the latter scenario is more likely to be the case.
Ameriprise's revenue and earnings are strongly tied to the state of the securities markets, which are in a long-term bull market bubble. Therefore, even though the company has a brand that will likely withstand the test of time, the price investors are paying right now is simply too high. While the stock is down 17% from its high in January, it should be avoided until the next correction.
Disclosure: I am not long or short any stocks mentioned in this article.
This article first appeared on GuruFocus.
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The intrinsic value of AMP
