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Why Is Lazard (LAZ) Down 5.9% Since Last Earnings Report?

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It has been about a month since the last earnings report for Lazard (LAZ). Shares have lost about 5.9% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Lazard due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Lazard Q4 Earnings Beat Estimates, Revenues Increase

Lazard delivered a fourth-quarter 2020 positive earnings surprise of 69.4%. Adjusted earnings of $1.66 per share surpassed the Zacks Consensus Estimate of 98 cents. Also, the bottom line came in above the prior-year quarter reported figure of 91 cents.

Results reflected revenue growth on elevated financial advisory revenues. Also, higher AUM supported the results. However, rise in expenses was a major drag.

Adjusted net income in the fourth quarter was $192 million, up 83% year over year. On a GAAP basis, Lazard’s net income came in at $190 million or $1.64 per share compared with the $77 million or 67 cents recorded in the prior-year quarter.

In 2020, the company reported net income (on GAAP basis) of $402 million or $3.54 per share compared with $287 million or $2.44 in 2019. The Zacks Consensus Estimate was pegged at $3.87.

Revenues Rise, Costs Increase

In the fourth quarter, adjusted operating revenues came in at $848.8 million, up 20% year over year. Also, it topped the Zacks Consensus Estimate of $615.4 million. This rise chiefly resulted from growth in asset-management and financial advisory revenues, partly offset by lower corporate revenues.

Lazard reported revenues of $2.52 billion in 2020, down 1% from previous year. Also, the top line lagged the consensus estimate of $2.72 billion.

Adjusted operating expenses were $613.8 million in the quarter, up 14.1% year over year. Higher compensation and benefits expenses, partly offset by lower non-compensation costs, resulted in this upside.

Adjusted compensation and benefits expense flared up around 22%, on a year-over-year basis, to $497.3 million. Adjusted non-compensation expense in the quarter was $116.6 million, down 10% year over year.

The ratio of compensation expense to operating revenues was 58.6%, up from the year-earlier quarter’s 57.5%. The ratio of non-compensation expense to operating revenues was 13.7% compared with the year-ago quarter’s 18.3%.

Segment Performance

Financial Advisory: The segment’s total revenues came in at a record $508.6 million, up 29% from the year-earlier quarter, reflecting higher M&A and restructuring activities.

Asset Management: The segment’s total revenues were $336.2 million, up 12% from the prior-year quarter. Higher AUM resulted in this upside.

Corporate: The segment generated revenues of $4 million compared with the $12.3 million recorded in the year-ago period.

AUM Growth

As of Dec 31, 2020, AUM was recorded at $258.6 billion, up 4.2% from the prior-year quarter. The quarter witnessed a market and foreign-exchange appreciation of $13.2 billion, partially offset by net outflows of $286 million.

Average AUM came in at $245.6 billion, down 3.1% year over year.

Steady Balance Sheet Position

Lazard’s cash and cash equivalents totaled $1.4 billion as of Dec 31, 2020, compared with $1.2 billion recorded as of Dec 31, 2019. The company’s stockholders’ equity was $999.4 million compared with $681.6 million as of Dec 31, 2019.

Outlook

The company expects its effective tax rate for the year to be in the low to mid 20% range.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision.

VGM Scores

At this time, Lazard has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Lazard has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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