AB - AllianceBernstein: A Struggling Asset Manager With Shares Nearing Big Support

Summary

• Capital markets equities have performed well against the broad market over the last five months.
• AllianceBernstein features a yield above 11% and the asset manager appears fairly valued if earnings estimates hold up.
• Technically, AB stock has plummeted back to key support from before the pandemic.

Not making new lows in the stock market right now are capital markets equities. The SPDR S&P Capital Markets ETF (KCE) hit a relative low versus the SPDR S&P 500 Trust ETF (SPY) in mid-May and has held that spot as tech stocks have sold off. One small global investment firm has not held up as well, though.

Capital Markets Stocks with Alpha Since May

According to Bank of America Global Research, AllianceBernstein (AB) is a financial services firm with a large asset management business in addition to a captive private wealth platform and a sell-side research business. AB is controlled by Equitable Holdings and is organized as a publicly traded partnership. Much depends on how investment dollars flow with the company. A bad year across financial markets does the asset manager and capital markets firm no favors. A downside risk is its corporate partnership structure that does now allow for significant ownership levels from long-only active and passive investors (mutual funds).

Expect further downward price action should a rotation from active funds to passive persist, along with compressing fees. AB's research arm also has headwinds from a shrinking and consolidating industry. A large international presence, while featuring some upside potential, is a near-term bearish risk should geopolitical tensions stay high. AB really needs markets to recover since it is very procyclical, though BofA notes that the firm has done relatively well since the June 16 interim low in stocks.

The Tennessee-based $3.2 billion market cap Capital Markets industry company within the Financials sector trades at a low 8.7 trailing 12-month GAAP price-to-earnings ratio and pays a very high 11.7% dividend yield, according to The Wall Street Journal .

On valuation, BofA analysts see earnings falling sharply this year, as to be expected with dreadful stock and bond performances, including a weak capital market. A soft 2023 EPS rebound is expected, and that's confirmed by the Bloomberg consensus per-share profit estimate. BofA is, however, more optimistic heading into 2024.

All the while, the stock has low operating and GAAP P/E along with decent free cash flow. That free cash flow should help sustain a high yield, but perhaps not at the current extreme rate north of 11%. An 11 or 12 multiple has been its five-year average, according to Seeking Alpha , so that could be reasonable, which is about its current forward operating P/E.

AB Stock: Earnings, Valuation, Dividend Forecasts

Looking ahead, corporate event data provided by Wall Street Horizon show a confirmed Q3 earnings date of Friday, Oct. 28 BMO with an earnings call at 10 am. You can listen live here . The calendar is light until then.

Corporate Event Calendar

The Technical Take

AB looks interesting here. Notice how the stock has pulled back to a major consolidation range from 2018 through 2019. The $26 to $31 area should be supportive, and we actually saw some buyers step in during a recent drop to near $31. While just 4% off the October low, that was a slight outperformance versus the S&P 500 last week.

The RSI, though, remains firmly in bearish oversold conditions, well under the May low, confirming a new low in price. Moreover, the downward sloping 200-day moving average was key resistance twice already this year. So, the bulls have their work cut out for them on any relief rally.

We can watch out for another probe lower into the $26 to $31 range in the coming weeks, and perhaps that comes along with a higher low on the RSI for a bullish divergence signal.

AB: Buyers About to Step Up to the Plate?

The Bottom Line

AB stock appears fairly valued, though I wonder if further EPS cuts (and even a dividend cut) loom. If so, we might see a dip lower, but long-term investors and technical swing traders can probably use that move as an opportunity to get long.

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