On Monday, TD Cowen has updated its outlook on Affiliated Managers Group (NYSE:AMG), raising the price target to $218 from $205 while maintaining a Buy rating on the stock. The firm anticipates a mixed flow report for the first quarter of 2024 but expects an overall improvement in flows and a strategic shift towards alternative investments (Alts).
The analyst from TD Cowen believes that Affiliated Managers Group will continue to focus its incremental capital on transitioning further into the alternatives sector. This move aligns with the company's long-term goal of generating 75% of its EBITDA from this segment. Additionally, the firm foresees the use of residual free cash flow to fund stock buybacks, which would gradually privatize the platform and potentially increase the equity value.
Despite a year-to-date increase of approximately 10% in the stock's value, the analyst points out that Affiliated Managers Group still trades at a relatively low multiple of 7 times their revised 2024 earnings estimate and 6 times the 2025 estimate. This valuation is perceived to offer a favorable risk/reward balance, and the new target price is considered conservative yet the highest among its peers.
The recent executive changes at Affiliated Managers Group are expected to potentially stimulate more mergers and acquisitions activity, according to TD Cowen. This could accelerate the company's shift away from its mature, long equity platform, which is currently showing mixed but likely improving lead indicators.
InvestingPro Insights
As Affiliated Managers Group (NYSE:AMG) focuses on a strategic shift towards alternative investments, recent data and insights from InvestingPro can provide investors with a deeper understanding of the company's financial health and market position. The company's aggressive share buyback program, as highlighted in one of the InvestingPro Tips, underscores management's confidence in the firm's value. This is complemented by the fact that AMG's liquid assets surpass its short-term obligations, indicating financial stability.
InvestingPro Data shows a robust P/E Ratio of 8.71, suggesting that the stock may be undervalued compared to earnings. The company's Price to Book ratio stands at a reasonable 1.52, and despite a revenue decline over the last twelve months, AMG maintains a healthy Gross Profit Margin of 55.9%. It's also noteworthy that analysts have revised their earnings upwards for the upcoming period, signaling potential optimism in the company's earning capacity.
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