Grab Up Lazard (LAZ) Ahead of M&A Resurgence - Barron's
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Should you buy Lazard Ltd. (NYSE: LAZ) as M&A activity begins to pick up? Barron's thinks so.
But, Lazard's story is more than just mergers and advisory services. Barron's notes that its asset management arm is undervalued relative to its overall performance. The unit saw a 14 percent gain in revs last quarter while it also boasts a diverse asset stream.
Lazard is valued at just over 14 times earnings following a drop after its Q1 report, but the stock is still up 27 percent in the last year. Most of the pressure last quarter was a decline in M&A fees, though that might not have been surprising to some given that many deals were rushed to close before the end of Q412 and potential changes in the tax code.
Last year, Lazard closed 31 deals, making it the third-largest bank in the space. Barron's notes that analysts suspect ingredients are right for M&A to pick up in the latter part of 2013.
CEP Ken Jacobs has also taken steps to trim pay to top execs and managers, which has been a sticking point with some in the past. Activist investor Nelson Peltz, who has a 5 percent stake in the firm, will see to it that pay levels keep going down.
Barron's commented that Lazard was still able to cut costs and boost margins amid a difficult few years. The firm has a goal of raising margins from about 16 percent up to 25 percent in 2014.
Given the above considerations, applying a 17.8 times multiple to expected FY14 earnings should yield a price of $40, up 22 percent from a close of $32.75 on Tuesday.
Risks include the "bumpy" nature of M&A activity, which makes for potentially volatile earnings, and it asset management is focused on equities, which could take a hit on another market downturn.
Shares are up over 1 percent on the session.
But, Lazard's story is more than just mergers and advisory services. Barron's notes that its asset management arm is undervalued relative to its overall performance. The unit saw a 14 percent gain in revs last quarter while it also boasts a diverse asset stream.
Lazard is valued at just over 14 times earnings following a drop after its Q1 report, but the stock is still up 27 percent in the last year. Most of the pressure last quarter was a decline in M&A fees, though that might not have been surprising to some given that many deals were rushed to close before the end of Q412 and potential changes in the tax code.
Last year, Lazard closed 31 deals, making it the third-largest bank in the space. Barron's notes that analysts suspect ingredients are right for M&A to pick up in the latter part of 2013.
CEP Ken Jacobs has also taken steps to trim pay to top execs and managers, which has been a sticking point with some in the past. Activist investor Nelson Peltz, who has a 5 percent stake in the firm, will see to it that pay levels keep going down.
Barron's commented that Lazard was still able to cut costs and boost margins amid a difficult few years. The firm has a goal of raising margins from about 16 percent up to 25 percent in 2014.
Given the above considerations, applying a 17.8 times multiple to expected FY14 earnings should yield a price of $40, up 22 percent from a close of $32.75 on Tuesday.
Risks include the "bumpy" nature of M&A activity, which makes for potentially volatile earnings, and it asset management is focused on equities, which could take a hit on another market downturn.
Shares are up over 1 percent on the session.
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