EMsights Capital Group's Progress Will Create Future Opportunities

Key Takeaways

• Expansion into diverse asset classes and strategies is expected to drive growth and enhance revenue through better diversification.
  
• Strong performance in credit and alternatives, alongside strategic development goals, could boost earnings and improve business prospects.
  
• Artisan Partners Asset Management faces potential revenue pressures from client cash outflows, fee structure volatility, and uncertain international market conditions.

Catalysts

Artisan Partners Asset Management Inc. is publicly owned investment manager.

• Expansion in investment strategies: Artisan Partners has expanded its platform to include 11 investment teams managing 25 strategies across various asset classes, including equities, fixed income, and alternatives. This diversification is expected to impact revenue by increasing avenues for growth.
  
• Growth in fixed income and alternatives: Both the Denver-based credit team and the Boston-based EMsights Capital Group have successfully raised significant net inflows, collectively managing nearly $15 billion. This progress in fixed income and alternatives is anticipated to enhance earnings and improve net margins through diversified revenue streams.
  
• Performance in credit-oriented franchises: The strong outperformance of Artisan's credit-oriented investment franchises compared to their benchmarks supports the potential for continued high asset management fees and performance fees, positively impacting future earnings.
  
• Strategic milestones and new talent: The development of strategies such as the International Explorer and the success of the EMsights Capital Group in hitting strategic milestones suggest improved business development prospects, potentially increasing revenue and earnings.
  
• Focus on the wealth and alternatives marketplace: Artisan's reorientation towards serving intermediated wealth clients and the growing demand for differentiated absolute return-oriented strategies could result in increased revenue and improved net margins.

Artisan Partners Asset Management Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Artisan Partners Asset Management's revenue will grow by 6.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 21.4% today to 22.8% in 3 years time.
• Analysts expect earnings to reach $302.6 million (and earnings per share of $3.42) by about March 2028, up from $237.4 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 14.2x on those 2028 earnings, up from 11.9x today. This future PE is lower than the current PE for the US Capital Markets industry at 23.2x.
• Analysts expect the number of shares outstanding to grow by 0.14% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.29%, as per the Simply Wall St company report.

Artisan Partners Asset Management Future Earnings Per Share Growth

Risks

• Artisan Partners Asset Management faced net client cash outflows of approximately $800 million in the December quarter, which could impact revenue and earnings growth.
  
• The exclusion of valuation changes on seed investments from adjusted results might obscure the actual impacts on shareholder economics, potentially affecting reported net margins.
  
• The revenue growth outpaced expense increases; however, high incentive compensation linked to performance could pressure future net income margins if revenue growth does not sustain.
  
• The company noted fluctuating fee rates, partly due to foundational assets with performance-based fees, which could impact future earnings if lower fee revenue streams dominate asset growth.
  
• Artisan's international and emerging markets strategies face uncertainty due to political and economic volatility, which could impact inflows and strain revenue growth from these sectors.

Valuation

• The analysts have a consensus price target of $43.562 for Artisan Partners Asset Management 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 $52.0, and the most bearish reporting a price target of just $36.25.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.3 billion, earnings will come to $302.6 million, and it would be trading on a PE ratio of 14.2x, assuming you use a discount rate of 7.3%.
• Given the current share price of $40.34, the analyst price target of $43.56 is 7.4% 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.