Charging Into High-Growth Markets And Innovating For A Bright Future

Key Takeaways

• Expansion into high-growth markets and enhanced distribution are driving revenue growth and potential margin improvements.
  
• Partnerships and focus on high-fee strategies in private markets and fixed income are boosting earnings potential.
  
• Reduced interest rates, increased competition, and market risks could hinder growth, with pressures on fees, equity outflows, and alternative investment slowdowns affecting revenue and AUM.

Catalysts

A publicly owned investment manager.

• AllianceBernstein is expanding into high-growth markets such as Asia, U.S. high net worth, and global insurance, supported by its differentiated distribution platform, which is expected to drive revenue growth.
  
• The company is enhancing its margin profile by relocating its office and implementing margin accretion initiatives, which are projected to improve net margins as they move into 2025.
  
• AllianceBernstein's growing private markets platform, particularly through partnerships like the one with Equitable, is poised to boost earnings with new products and channels in private credit, real estate, and alternative strategies.
  
• The stabilization and potential growth in their fee rate, along with a focus on high-fee strategies, are expected to increase overall revenue and earnings.
  
• The firm sees strong demand in fixed income, highlighted by net inflows and reallocations, expecting future reallocations with the potential steepening yield curve to further enhance revenue streams.

AllianceBernstein Holding Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming AllianceBernstein Holding's revenue will grow by 253.3% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 296.2% today to 6.2% in 3 years time.
• Analysts expect earnings to reach $364.2 million (and earnings per share of $3.86) by about November 2027, down from $397.1 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 13.1x on those 2027 earnings, up from 10.4x today. This future PE is lower than the current PE for the US Capital Markets industry at 23.6x.
• Analysts expect the number of shares outstanding to decline by 5.97% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.72%, as per the Simply Wall St company report.

AllianceBernstein Holding Future Earnings Per Share Growth

Risks

• The potential decrease in interest rates could negatively impact performance fees from AB Private Credit Investors (AB-PCI), particularly if spread compression continues, thus affecting future growth in this area and impacting revenue.
  
• There is increasing competition and potential fee compression in certain channels, like systematic fixed income and investment-grade alternatives, which may put downward pressure on future revenue growth and net margin.
  
• Elevated institutional equity outflows, particularly in the active equity channel, persist as a notable concern, which could detract from revenue if this pattern continues without offsetting inflows.
  
• Market risks such as changes in economic conditions and investor preferences may impact the predicted path to margin expansion, particularly if new strategic initiatives do not scale as anticipated, affecting operating margins.
  
• A slowdown in alternative investments and the extended time frame for achieving targeted AUM growth in private markets, as shown by CarVal-related updates, could impact overall AUM growth expectations and long-term earnings potential.

Valuation

• The analysts have a consensus price target of $41.71 for AllianceBernstein Holding 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 $50.0, and the most bearish reporting a price target of just $36.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $5.9 billion, earnings will come to $364.2 million, and it would be trading on a PE ratio of 13.1x, assuming you use a discount rate of 6.7%.
• Given the current share price of $36.5, the analyst's price target of $41.71 is 12.5% higher.
• 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.