Affiliated Managers Group Inc. AMG is scheduled to release fourth-quarter and 2015 results on Feb 2, before the market opens.
In the preceding quarter, Affiliated Managers’ economic net income (“ENI”) per share surpassed the Zacks Consensus Estimate. Results reflected a fall in operating expenses, partially offset by lower revenues.
Moreover, Affiliated Managers recorded an earnings beat in three of the trailing four quarters with an average positive surprise of 1.37%.
Will Affiliated Managers be able to keep its earnings streak alive this time around? Or will it succumb to the challenging industry backdrop? Let's see how things have shaped up for this announcement.
Factors to Impact Q4 Results
Affiliated Managers holds an almost unbeaten track record of buying equity interests in asset management companies with strong performance-oriented products. During the fourth quarter, the company announced completion of its investment in myCIO Wealth Partners, LLC.
We believe this and all other past equity investments should continue to boost the company’s top line, driven by excellent long-term performance of its affiliates.
For 2015, management projects ENI in the range of $12.20–$12.80 per share.
Moreover, management estimates the ratio of earnings before interest, taxes, depreciation and amortization (“EBITDA”) contribution at end-of-period AUM to remain stable sequentially at 17.1 basis points (bps) for the quarter.
Also, Affiliated Managers anticipates performance fees to moderately improve on the back of the EIG Global Energy Partners, LLC fund. Moreover, the excess cash flow generated from the increased scale and diversity of the business is expected to provide the company with considerable capacity and flexibility to execute both new investments and share repurchases.
On the cost front, Affiliated Managers expects total interest expenses to decline to $20 million sequentially in the quarter, driven by interest savings from the redemption of 2022 senior bonds. Moreover, the company expects amortization expenses to be roughly $30 million, attributable to the scheduled amortization of certain affiliates.
Further, management projects pre-tax non-cash imputed interest to fall sequentially to around $1 million. As the company continues to invest in affiliates, we expect expenses to trend higher in the upcoming release.
Also, management foresees GAAP tax rate to be about 33% and the cash tax rate to remain approximately 22%. Further, intangible-related deferred taxes are expected to be $22.0 million.
Notably, Affiliated Managers’ quarterly activities were inadequate to win analysts’ confidence. Hence, the Zacks Consensus Estimate for the quarter remained unchanged at $3.60 per share over the last 7 days.
Earnings Whispers
Our proven model does not conclusively show that Affiliated Managers is likely to beat the Zacks Consensus Estimate in the third quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) for this to happen. Unfortunately, this is not the case here as you can see below.
Zacks ESP: The Earnings ESP for Affiliated Managers is -0.56%. This is because the Most Accurate estimate of $3.58 per share is below the Zacks Consensus Estimate of $3.60 per share.
Zacks Rank: Affiliated Managers’ Zacks Rank #3 increases the predictive power of ESP, but we need to have a positive Earnings ESP to be confident of an earnings beat.
Stocks That Warrant a Look
Here are a few finance stocks that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter.
Old National Bancorp. ONB has an Earnings ESP of +17.86% and holds a Zacks Rank #2. It is scheduled to report on Feb 1.
Earnings ESP for American Capital, Ltd. ACAS is +12.50% and it has a Zacks Rank #1. The company is slated to report on Feb 23.
TCP Capital Corp. TCPC has an Earnings ESP of +2.44% and a Zacks Rank #3. It is scheduled to report results on Feb 29.
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