Lazard (LAZ) Hurt by Advisory Revenues, Rising Net Outflows
Lazard Ltd.'s LAZ overdependence on financial advisory revenues and continued net outflows are major headwinds for the company. This, along with unsustainable capital deployments, is a concern. However, cost-containment measures and solid asset under management (AUM) balance offer some support.
The over-dependence on financial advisory revenues could affect the company’s financials. Financial advisory revenues contributed 52% to Lazard’s total operating revenues in first-quarter 2023. The metric declined in 2022 and first-quarter 2023, signaling weakness in the company’s revenue generation capacity.
The muted global merger and acquisition deal value and volumes, as well as a slump in capital market activities, are affecting advisory revenue growth. We estimate financial advisory revenues to decline 12.7% in 2023.
Lazard has been witnessing a steady increase in net outflows for the past several years. In the last four years (ended 2022), net outflows saw a compound annual growth rate of 23.1%, mainly due to outflows witnessed in equity asset class.
Nonetheless, in the first quarter of 2023, the company recorded net inflows of around $3 billion. A challenging operating backdrop, highlighted by equity outflows in emerging markets, is a hindrance for the near term. We anticipate net outflows to be $1.44 billion this year.
The company has hiked its dividend in the past and has a share repurchase plan in place. However, its payout rate and debt/equity ratio seem unfavorable compared with the broader industry’s averages. These, along with Lazard's volatile performance over the last few quarters, make us believe that its capital-deployment activities might not be sustainable.
Analysts also seem pessimistic regarding LAZ’s earnings growth prospects. The Zacks Consensus Estimate for 2023 and 2024 earnings has been revised 51.9% and 6% lower, respectively, over the past 60 days. Further, the company currently carries a Zacks Rank #5 (Strong Sell).
Over the past three months, shares of LAZ have declined 4.8% against the industry's upside of 4.9%.
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Despite the above-mentioned concerns, Lazard is well placed to grow organically, driven by a solid AUM balance. Further, given its strong financial flexibility, the company has a lesser likelihood of defaulting on interest and debt repayments, even if the economic situation worsens. These efforts are likely to support revenue growth going forward.
Finance Stocks Worth a Look
A couple of better-ranked stocks from the finance space are Artisan Partners Asset Management APAM and Federated Hermes FHI.
The Zacks Consensus Estimate for Artisan Partners' current-year earnings has been revised 3.4% upward over the past 60 days. Its shares have gained 34.4% over the past six months. Currently, APAM carries a Zacks Rank #2 (Buy).
Federated Hermes also carries a Zacks Rank #2 at present. The consensus mark for the company's 2023 earnings has been revised marginally upward over the past seven days. In the past six months, FHI shares have declined 0.8%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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Lazard Ltd (LAZ) : Free Stock Analysis Report
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