On Friday, Morgan Stanley adjusted its stance on Victory Capital Holdings, Inc. (NASDAQ: NASDAQ:VCTR), upgrading the stock from Underweight to Equalweight and significantly increasing the price target to $60.00 from the previous $40.00. The firm's decision comes as the initial concerns regarding persistent net outflows were outweighed by the company's strategic actions, which have led to improved earnings growth and reduced financial leverage.
Victory Capital has seen its stock value surge by over 75% since the beginning of the year. Despite the outflows, which have indeed occurred—accelerating to an estimated annualized rate of -6% in the third quarter of 2024 from -4.1% in the second quarter and -2.8% in the first quarter—the company's market valuation has not suffered. Instead, it has risen on the back of strategic mergers and acquisitions, particularly the recent transaction to acquire Amundi's US business.
The analyst from Morgan Stanley highlighted that the market has looked past the deteriorating net outflows, focusing instead on the management's creative and strategic actions. These actions have not only driven better earnings growth but have also significantly reduced the company's financial leverage, thereby strengthening Victory Capital's scale with a more integrated and unique multi-affiliate business model.
The acquisition of Amundi's US business has been described as accretive and creative, indicating a positive move for Victory Capital. This move is expected to further bolster the company's position and enhance its business model, which has been a key factor in the stock's valuation increase.
Victory Capital's recent performance and strategic decisions have led to a reassessment by Morgan Stanley, resulting in a more favorable view of the company's stock. The upgraded rating and increased price target reflect the firm's adjusted expectations for Victory Capital's future performance in light of its recent actions and market developments.
In other recent news, Victory Capital Holdings has been the focus of significant developments. The asset management company has entered a distribution agreement with Amundi, positioning Victory Capital as the exclusive provider of U.S. strategies to Amundi's global clientele. BMO Capital Markets has increased its price target for the company, maintaining an Outperform rating, anticipating that this partnership could yield between $2 billion and $4 billion in annual asset under management flows. The firm also predicts potential revenue synergies estimated at $20 million to $40 million for the year 2025.
In addition, Barclays initiated coverage on Victory Capital, assigning an Equal Weight rating. The firm highlighted the company's strong financials and the pending transaction with Amundi US, which is expected to boost Victory Capital's assets under management by over 50% and significantly increase its earnings per share.
RBC Capital has slightly reduced its price target for Victory Capital, but continues to maintain an Outperform rating, highlighting the potential for both inorganic and organic growth. The firm also emphasized the potential for revenue synergies from the collaboration with Amundi.
BMO Capital also maintained an Outperform rating for Victory Capital, citing potential catalysts such as improved net flows, promising merger prospects, and the resumption of stock buybacks. The company also extended the maturity date of its $100 million senior secured first lien revolving credit facility, a strategic move expected to provide increased financial flexibility.
InvestingPro Insights
Recent data from InvestingPro reinforces Morgan Stanley's upgraded outlook on Victory Capital Holdings (NASDAQ: VCTR). The company's market cap stands at $3.93 billion, with a P/E ratio of 16.61, indicating a reasonable valuation considering its growth prospects. Victory Capital's revenue growth of 4.5% over the last twelve months and 7.54% in the most recent quarter aligns with the analyst's positive view on the company's earnings growth.
InvestingPro Tips highlight Victory Capital's strong financial position and market performance. The company has raised its dividend for 5 consecutive years, demonstrating a commitment to shareholder returns. This is further supported by a robust dividend growth of 28.12% over the last twelve months. Additionally, Victory Capital's stock is trading near its 52-week high, with an impressive 111.35% price total return over the past year, reflecting the market's confidence in the company's strategic decisions and growth potential.
These insights complement Morgan Stanley's analysis, particularly regarding Victory Capital's improved earnings growth and reduced financial leverage. The company's liquid assets exceeding short-term obligations, as noted in the InvestingPro Tips, further underscores its strengthened financial position.
For investors seeking a deeper understanding of Victory Capital's potential, InvestingPro offers 12 additional tips, providing a comprehensive view of the company's financial health and market position.
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