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.
Summary
• 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.
