Wednesday, October 11, 2017

A current AIM International Fund Holding: Lazard (LAZ) by Cathy Gong. "A Solid Hold"

Lazard (LAZ, $44.60): “Still Has Room to Grow in the Foreseeable Future
By: Cathy Gong, AIM Student at Marquette University

Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.


Lazard Ltd. (NYSE:LAZ) is a financial advisory and asset management company. LAZ offers corporate, partnership, institutional, government, sovereign and individual clients across the globe a wide array of services regarding merger and acquisitions and other strategic matters, restructurings, capital structure, capital raising, and various other financial matters.

• Adjusted operating margin peaked at 25% and operating revenue grew 28% to $1.345 billion for the first half of 2017.

• LAZ reported first half of 2017 adjusted diluted earnings per share of $1.81.

• Financial advisory revenue was 43% higher compared to the previous year in the second quarter of 2017.

• LAZ is in a strong position when global M&A accelerates since it has the largest geographic footprint among the independent financial investment banks.

Key points: LAZ had net inflows of $1.4 billion over the last eight quarters. For the first half of 2017, operating revenue grew 28% to $1.345 billion. LAZ reported first half of 2017 adjusted diluted earnings per share of $1.81.

LAZ currently has approximately $1 billion of debt and a relatively high debt/equity ratio. However, LAZ is in a healthy financial position and has healthy cash flows from operations. In the past years, LAZ announced several dividend increase since 1Q2011, finished more than $1.5 billion of stock repurchase, retired $150 million of debt.

As the global fiduciary regulations change distribution relationships between asset managers and wealth management firms, the firm is going through some changes lately. US potential policy changes, such as tax reform, create uncertainty to LAZ’s larger merger transactions. LAZ has been consistently profitable in the past, and is believed to maintain its probability in the future as its diversified revenue streams.

What has the stock done lately?

LAZ was purchased in May 2017 at $44.50 with a target price of $54.80. Price hasn’t changed that much since we first bought it in this May. However, three drivers mentioned in the initial equity write-up, rebound in M&A, asset management growth, and global footprint still remain and potential growth of LAZ is expected in the future.

Past Year Performance: LAZ has a 1 Year Total Return of 32.65% and has increased 26.35% in value in the past year. 2Q2017 adjusted revenues of $720M were up 33% YoY driven by increased activity in Europe due to favorable political changes.
Source: FactSet

My Takeaway

LAZ has shown a solid gain in the past year and still has room to grow in the foreseeable future. With a target price of $54.8. LAZ is able to carry the probability forward into the future. The original drivers have begun to run their course and place LAZ in a stronger competitive position. 2Q2017 is deemed to be a well-rounded beat for LAZ and it is believed that advisory and restructuring revenue strength will drive their future earnings beat. Therefore, it is recommended that AIM Equity Fund hold its position.