Active ETFs And Real Estate Initiatives Will Shape Asset Manager's Future

Key Takeaways

• Growth in AUM from market appreciation and net inflows is expected to increase revenue through higher management fees.
  
• Pursuing active ETFs and focusing on private real estate initiatives could enhance revenue and earnings growth.
  
• Rising expenses and competitive pressures may challenge net margins and revenue growth if they outpace gains from technology investments and capital reallocation strategies.

Catalysts

A publicly owned asset management holding company.

• An increase in the average assets under management (AUM) due to market appreciation and net inflows is expected to boost revenue as higher AUM typically generates more management fees.
  
• Strong investment performance, with a large percentage of AUM outperforming benchmarks, suggests potential for attracting more clients, leading to higher revenues and improved net margins.
  
• As the shift to active exchange-traded funds (ETFs) is pursued, it could capture investor interest in vehicles preferred in current market conditions, positively impacting future revenue growth.
  
• The development of a nontraded REIT focusing on underpriced shopping centers could offer attractive yields and growth prospects, enhancing future earnings from private real estate initiatives.
  
• A turning point in market conditions for infrastructure and real estate assets, coupled with anticipated interest rate cuts, could improve sentiment and performance, potentially increasing future revenue through enhanced asset allocations.

Cohen & Steers Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Cohen & Steers's revenue will grow by 12.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 27.2% today to 44.6% in 3 years time.
• Analysts expect earnings to reach $312.1 million (and earnings per share of $6.23) by about December 2027, up from $135.3 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 19.9x on those 2027 earnings, down from 37.6x today. This future PE is lower than the current PE for the US Capital Markets industry at 23.5x.
• Analysts expect the number of shares outstanding to decline by 0.31% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.85%, as per the Simply Wall St company report.

Cohen & Steers Future Earnings Per Share Growth

Risks

• The increase in compensation and benefits along with distribution and service fees, while aligned with revenue growth, could pressure net margins if expenses outpace revenue growth.
  
• Anticipated G&A expenses are expected to rise by 6% to 7% for the year due to investments in technology and infrastructure, which could impact net margins if these expenses do not lead to proportionate revenue increases.
  
• The possibility of $1 billion in expected redemptions could offset inflows and impact overall AUM, potentially reducing revenue if redemptions outweigh new inflows.
  
• Competitive pressures and fee reductions in sub-advisory mandates, as noted, may impact average fee rates and overall revenue if similar pressures are experienced across other segments.
  
• Changes in capital allocation strategies, especially with potential for reallocation between private and listed assets, could affect investment flows and revenue if the expected shift does not materialize in favor of listed infrastructure or REITs.

Valuation

• The analysts have a consensus price target of $101.67 for Cohen & Steers based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $700.4 million, earnings will come to $312.1 million, and it would be trading on a PE ratio of 19.9x, assuming you use a discount rate of 6.8%.
• Given the current share price of $100.61, the analyst's price target of $101.67 is 1.0% 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.