Tuesday, TD Cowen adjusted its stance on Affiliated Managers Group (NYSE:AMG) shares, shifting from a Buy to a Hold rating, and slashed the price target to $177 from $226. The move follows a significant drop in the company's share price after third-quarter results, which were reported on Monday (NASDAQ:MNDY). The firm cited several reasons for the downgrade, including a deeper than expected attrition in active equities and a less optimistic outlook for future performance.
The analyst pointed out that despite Affiliated Managers Group's shift towards alternative investments, there are concerns about the long-term flow trajectory for 2025, particularly due to the drag from active equities.
The firm's disappointing performance forecast for the fourth quarter of 2024 and for 2025 has put AMG back in the "penalty box," especially as peers in the alternatives sector are expected to see an accelerating monetization cycle.
TD Cowen's revised outlook suggests investors may now lean towards companies with a clearer focus on either pure alternative investments or more evident traditional turnaround opportunities. The interplay between flows and performance is expected to continue pressuring the company's base earnings growth.
Moreover, the analyst mentioned that the updated sum-of-the-parts (SOTP) framework indicates a nominal residual value for AMG, even after accounting for the approximately 9% decline in share price on Monday. The new price target reflects lowered earnings estimates for 2024 and 2025.
In other recent news, Affiliated Managers Group (AMG) reported an 18% increase in economic earnings per share (EPS) in its third-quarter earnings, reaching $4.82, with assets under management (AUM) reaching approximately $730 billion, the highest in over two years.
The company's adjusted EBITDA projections for Q4 range between $260 million and $270 million and economic EPS is expected to be between $5.94 and $6.17. Despite these strong results, Deutsche Bank (ETR:DBKGn) maintained its Buy rating on AMG but reduced the price target to $204.00, citing a more cautious stance on the company's organic growth and performance fee outlook.
AMG experienced outflows of $2.8 billion, more negative than Deutsche Bank's anticipated inflows of $0.3 billion. However, AMG confirmed plans to repurchase $700 million of shares this year, supported by a strong balance sheet. The company also expects lower performance fees for 2024, falling below the long-term average outlook.
Despite these challenges, AMG remains optimistic about its growth strategy, particularly in private markets and liquid alternatives. These are the recent developments for AMG.
InvestingPro Insights
Recent data from InvestingPro sheds additional light on Affiliated Managers Group's financial position and market performance. Despite the recent downgrade, AMG maintains a relatively modest P/E ratio of 12.4, suggesting the stock may still be reasonably valued. The company's revenue for the last twelve months as of Q3 2024 stands at $2.02 billion, with a gross profit margin of 54.39%, indicating a solid ability to generate profit from its core business activities.
InvestingPro Tips highlight that management has been aggressively buying back shares, which could be seen as a vote of confidence in the company's future prospects. This aligns with the high shareholder yield noted by InvestingPro, potentially offsetting some concerns raised in the analyst downgrade. However, it is worth noting that two analysts have revised their earnings downwards for the upcoming period, which corroborates TD Cowen's cautious stance.
Interestingly, despite the recent setback, AMG has shown a strong return over the last five years, according to another InvestingPro Tip. This long-term performance may provide some reassurance to investors considering the company's potential beyond the current challenges in active equities.
For readers interested in a more comprehensive analysis, InvestingPro offers 7 additional tips for AMG, providing a deeper understanding of the company's financial health and market position.
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