Partnerships Aid Affiliated Managers (AMG) Amid Cost Woes
Affiliated Managers Group, Inc.’s AMG diverse product offerings, robust assets under management (AUM) balance and global distribution capability will likely keep driving top-line growth. A robust liquidity position is expected to support its investments in alternatives, thereby generating solid earnings.
Analysts seem optimistic regarding the company’s earnings growth prospects. The Zacks Consensus Estimate for AMG’s 2023 earnings has moved 4% higher over the past 60 days.
However, steady net client cash outflows are worrisome and will likely hurt the company’s financials. Also, mounting operating expenses might adversely impact bottom-line growth. Thus, Affiliated Managers currently carries a Zacks Rank #3 (Hold).
Over the past six months, shares of AMG have lost 4.8% against the industry’s growth of 9.1%.
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Looking at its fundamentals, though Affiliated Managers’ consolidated revenues declined in the first nine months of 2023, owing to the challenging operating backdrop, the metric witnessed a three-year (ended 2022) compound annual growth rate (CAGR) of 1.3%.
While the uncertainty of the capital market performance is expected to weigh on the top line to some extent in the near term, the company’s portfolio of investment products provides a competitive edge when it comes to fulfilling the diverse needs of clients.
Moreover, Affiliated Managers, with its strong balance sheet and liquidity position, has considerable capability to invest in other companies and generate meaningful growth through new investments. In October 2023, it acquired a minority stake in Ara Partners, while in August, the company acquired a minority equity interest in Forbion Group Holding B.V. Management projects the deals to add 2-3% to economic earnings per share on an annualized basis.
In September, AMG divested its stake in Veritable, LP for $294 million in cash. In October 2022, AMG sold its minority interest in Baring Private Equity Asia to EQT AB and received $240 million in cash and 28.68 million EQT ordinary shares. Going forward, AMG is targeting investments in private markets and liquid alternatives, given the strong investor preference for the same.
However, while the company’s consolidated expenses declined in the first nine months of 2023, the metric witnessed a CAGR of 1.1% over the three-year period that ended in 2022. Overall costs are expected to remain elevated due to advertising campaigns, hiring, inflation and technology upgrades. Our estimates for total consolidated expenses suggest seeing a CAGR of 1.6% by 2025.
Also, Affiliated Managers’ affiliates have been witnessing overall net outflows over the past few years. Net client cash outflows were $23.1 billion in the first nine months of 2023, $33 billion in 2022, $18.5 billion in 2021, $61.8 billion in 2020 and $53.5 billion in 2019. Though the company’s differentiated product categories are likely to support cash flows across channels, a tough operating backdrop is expected to keep investors on the sidelines in the near term.
Stocks Worth a Look
A couple of better-ranked stocks from the finance space are Prospect Capital Corporation PSEC and Horizon Technology Finance Corporation HRZN.
Earnings estimates for PSEC have been revised 8.1% upward for the current fiscal year over the past 60 days. The company’s share price has decreased 5.4% over the past three months. PSEC currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Horizon Technology also flaunts a Zacks Rank of 1 at present. Its earnings estimates have been revised upward by 7.6% for the current year over the past 60 days. In the past three months, HRZN’s share price has increased 7.2%.
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Affiliated Managers Group, Inc. (AMG) : Free Stock Analysis Report
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