Reshaped Operations And Divestitures Will Unlock Alternative Investment Opportunities

Key Takeaways

• SEI's strategic transformation and client engagement initiatives are poised to boost revenue and expand market presence through deepened relationships.
  
• Aggressive share repurchases and divestitures of non-core assets are enhancing SEI's financials, improving earnings and focusing resources on growth areas.
  
• SEI's revenue growth is at risk due to reliance on current market conditions, strategic spending, and heavy U.S. market dependence amidst macroeconomic uncertainties.

Catalysts

A publicly owned asset management holding company.

• SEI's transformation efforts, including reshaping the operating model and enhancing client engagement, are expected to boost revenue as these strategies deepen existing relationships and expand market reach.
  
• The divestiture of the Family Office Services business is anticipated to enhance earnings by reallocating resources to higher-growth opportunities within SEI's core business lines, thereby increasing net margins.
  
• Record net sales events in Q1, particularly from recurring revenue sources, are likely to drive sustained revenue growth across multiple business lines, domestically and internationally.
  
• Aggressive share repurchases, supported by SEI's strong cash position and no long-term debt, have already contributed to EPS growth and are expected to continue improving earnings per share.
  
• SEI's focus on expanding its capabilities in alternative investments and leveraging its strong position with alternative managers should positively impact revenue and margins as demand remains robust in this sector.

SEI Investments Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming SEI Investments's revenue will grow by 4.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 27.8% today to 28.0% in 3 years time.
• Analysts expect earnings to reach $680.1 million (and earnings per share of $5.8) by about April 2028, up from $601.3 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 16.2x on those 2028 earnings, which is the same as it is today today. This future PE is lower than the current PE for the US Capital Markets industry at 24.5x.
• Analysts expect the number of shares outstanding to decline by 5.25% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.11%, as per the Simply Wall St company report.

SEI Investments Future Earnings Per Share Growth

Risks

• SEI's strong sales performance is partially driven by external factors such as alternative managers' opportunistic strategies in a volatile market; any reduction in demand could negatively impact future revenue growth.
  
• The company's focus on the regional and community bank segment, while currently successful, may face challenges if regulations change, potentially affecting growth rates and resulting revenue.
  
• Despite robust current sales pipelines, macroeconomic uncertainty and market volatility present risks to future revenue recognition and pipeline activity.
  
• Accelerated spending on strategic investments may not yield the anticipated return, potentially leading to pressure on net margins if cost controls are insufficient.
  
• High reliance on the U.S. market for asset management allocations (approximately 80%) implies that adverse U.S. economic conditions could more significantly impact their revenues and earnings.

Valuation

• The analysts have a consensus price target of $85.2 for SEI Investments based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $94.0, and the most bearish reporting a price target of just $79.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $2.4 billion, earnings will come to $680.1 million, and it would be trading on a PE ratio of 16.2x, assuming you use a discount rate of 7.1%.
  
• Given the current share price of $78.04, the analyst price target of $85.2 is 8.4% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.