The strong gains seen during 2013 somewhat limit the upside potential to stocks of asset managers during Q4, 2014 and 2015.
“We remain most bullish on Alternative Managers (deepest upside to targets, best underlying flow dynamics, still favorable realization backdrop, and tactically expect strong 4Q ENI beats to the “Street”) but are becoming increasingly price sensitive on Traditional Asset Managers and Broker Dealers following sizeable upswings in 2013, particularly into YE,” says Citi’s research team of William R Katz, Neil Stratton and Steven J Fullerton, in their Q4 preview.
Citi’s asset manager universe
Here is a summary of stocks across Alternative, Traditional and Broker-Dealers segments with ratings, target and current year earnings estimates.
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Citi’s asset managers of choice
Following the current review, the Citi research team has only downgraded the ratings of brokers TD Ameritrade Holding Corp. (NYSE:AMTD) and Charles Schwab Corp (NYSE:SCHW) a notch lower, though price targets have been raised marginally. Other ratings remain unchanged.
The highlighted stocks in the table above represent Citi’s stock of focus in each of the three asset manager categories.
The Blackstone Group L.P. (BX)
Citi has a Buy rating on the company and a PT of $35. The Blackstone Group L.P. (NYSE:BX) will likely beat estimates for its Q4 earnings. Citi expects management to come out with encouraging views on capital mobilization, profit realization and diversification. Blackstone’s real estate portfolio is expected to lead a surge in monetization due to rich exit opportunities.
Blackstone’s BCP V (PE) fund could provide a boost to 2014 earnings and trigger revisions of consensus estimates.
ValueWalk reported October that Blackstone AUM hit a record $250B during Q3.
Invesco Ltd. (IVZ)
This traditional asset manager is Citi’s stock of choice having a Buy rating and a PT of $44 in 12 months.
Citi appreciates the stock for “a solid flow story and attractive valuation.” The company is likely to show better than expected operating leverage and capital returns, together with upward revisions to consensus estimates.
LPL Financial Holdings Inc (LPLA)
Citi expects the company to focus on capital return to shareholders through higher dividends and buybacks. The company is likely to positively surprise on Q4 EPS and report better productivity and growth in financial assets.
The broker dealer is likely improve margins, enhance risk management and free cash flows, and grows its revenues.
Citi rates the stock as a Buy and has a 12 month price target of $52.