Expansion In Abu Dhabi And Europe Will Trigger Cost Pressures

Key Takeaways

• Expansion initiatives in the Middle East and strategic alliances might strain resources and increase operating costs without immediate revenue benefits.
  
• Efforts in advisory services and ETF offerings could elevate expenses, impacting net margins and short-term earnings before yielding growth.
  
• Lazard's diversification and global strategic expansions position the firm for stable revenue growth despite economic uncertainties and specific market challenges.

Catalysts

Operates as a financial advisory and asset management firm in the Americas, Europe, the Middle East, Africa, and the Asia Pacific.

• Lazard's expansion in the Middle East with a new Financial Advisory office in Abu Dhabi could strain resources and lead to higher operating costs without immediate revenue impact, potentially affecting net margins.
  
• The strategic alliance with Arini Capital Management to expand connectivity to private capital in Europe might take time to contribute to revenue streams and could involve integration costs, impacting short-term earnings.
  
• Expanding ETF offerings and international market focus could increase near-term expenses and not immediately yield revenue, causing pressure on net margins and earnings.
  
• Efforts to broaden financial advisory services with additions in healthcare, financial sponsors, and restructuring suggest increased investment in personnel, which might lead to temporary elevated expenses without corresponding revenue growth.
  
• Continued geopolitical advisory expansion and recruitment may increase operating costs faster than revenue from these services materializes, adversely affecting net margins in the short term.

Lazard Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Lazard's revenue will grow by 7.7% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 10.1% today to 8.7% in 3 years time.
• Analysts expect earnings to reach $319.4 million (and earnings per share of $3.09) by about May 2028, up from $297.1 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 17.8x on those 2028 earnings, up from 12.7x today. This future PE is lower than the current PE for the US Capital Markets industry at 25.0x.
• Analysts expect the number of shares outstanding to grow by 4.37% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.57%, as per the Simply Wall St company report.

Lazard Future Earnings Per Share Growth

Risks

• Lazard's diversification in M&A, non-M&A, and global operations allows the firm to adapt to changing market conditions and capture opportunities across different regions, potentially stabilizing revenues amidst economic uncertainties.
  
• Growth in Lazard's financial advisory backlog, particularly in Europe, combined with a diversified business model across geographic and product lines, could buoy revenues even if specific markets face challenges.
  
• Significant engagement with clients, including strategic alliances and global expansion into key regions like the Middle East, indicates potential for revenue growth through enhanced client coverage and increased advisory opportunities.
  
• Asset Management's positive inflow trends, driven by large wins and growing pipeline of unfunded mandates, suggest potential for future revenue and earnings stability as these mandates are realized and serviced.
  
• Lazard's strategic expansions and active ETF offerings in promising market sectors, such as Japanese and global equities, might enhance future revenues and margins as investor interest in these areas grows.

Valuation

• The analysts have a consensus price target of $41.571 for Lazard 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 $55.0, and the most bearish reporting a price target of just $33.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $3.7 billion, earnings will come to $319.4 million, and it would be trading on a PE ratio of 17.8x, assuming you use a discount rate of 8.6%.
• Given the current share price of $39.98, the analyst price target of $41.57 is 3.8% 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.