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A month has gone by since the last earnings report for Affiliated Managers Group (AMG). Shares have lost about 3.2% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Affiliated Managers due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Affiliated Managers Q4 Earnings Top Estimates, AUM Down
Affiliated Managers’ fourth-quarter 2020 economic earnings of $4.22 per share surpassed the Zacks Consensus Estimate of $3.73. However, the bottom line declined 6.6% year over year.
The results reflect lower operating expenses and a robust liquidity position. However, lower revenues and fall in AUM balance were headwinds.
Economic net income was $191.4 million, down 13.7% from the prior-year quarter.
In 2020, economic earnings per share of $13.36 decreased 6% year over year but beat the consensus estimate of $12.89. Economic net income declined 5.1% to $798.8 million.
Revenues & AUM Down, Expenses Fall
Quarterly total revenues fell marginally year over year to $554.4 million. However, the top line beat the Zacks Consensus Estimate of $522 million.
In 2020, total revenues were $2.03 billion, down 9.5% year over year. The top line outpaced the Zacks Consensus Estimate of $2 billion.
Adjusted EBITDA was $255.2 million, jumping 27.4% from the year-ago quarter.
Total expenses decreased 13.1% to $386.7 million. Decline in intangible amortization and impairments, and selling, general and administrative costs primarily led to the fall.
As of Dec 31, 2020, total AUM was $716.2 billion, down nearly 1% year over year. Net client cash outflows of $15.8 billion during the quarter hurt AUM.
Capital & Liquidity Position Decent
As of Dec 31, 2020, Affiliated Managers had $1.04 billion in cash and cash equivalents compared with $539.6 million on Dec 31, 2019. The company had $2.31 billion of debt, up 28.9% from the Dec 31, 2019 level.
Shareholders’ equity as of Dec 31, 2020 was $2.8 billion compared with $2.9 billion as of Dec 31, 2019.
Share Repurchase Update
During the fourth quarter, the company repurchased shares worth $226 million.
First-Quarter 2021 Outlook
Management expects adjusted EBITDA of $240-$250 million based on present AUM level. Performance fee is anticipated to be in the range of $35-$45 million, reflecting seasonality and solid performance of liquid alternative managers.
Interest expenses are expected to be $27 million, relatively stable from the prior quarter. Controlling interest depreciation is expected to remain at the fourth-quarter 2020 level of $2 million.
The company’s share of reported amortization and impairments are expected to be approximately $40 million, down 54% sequentially. Intangible related deferred taxes are projected to be approximately $9 million.
Other economic items (excluding any mark-to-market impact) are anticipated to be $1 million.
Adjusted weighted average share count is estimated to be $43 million.
GAAP tax rate is expected to be 25%. Additionally, cash tax rate is expected to be 19%.
Economic earnings per share are projected to be in the range of $15.50-$17.00 and adjusted EBITDA will be range of $875 million to $940 million. The company expects performance fee contribution of nearly 10% of earnings.
Adjusted weighted average share count is estimated to be $41.5 million, which indicates $500 million of excess capital returned through share repurchases.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 23.78% due to these changes.
At this time, Affiliated Managers has an average Growth Score of C, a grade with the same score on the momentum front. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Affiliated Managers has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.