KCE - AllianceBernstein: AUM Trends Could Be A Risk In 2023 Shares Trending Lower

Summary

• Investor flows have accelerated away from mutual funds into passive products to end 2022.
• With lower stock and bond prices and weak capital markets, one domestic firm in the industry has struggled in the last 13 months.
• I see more downside ahead, but AB's high yield and decent valuation are reasons for hope.

Capital market stocks have given back some of their relative gains off a May low lately. Still, the group that is a mix of value and cyclicality has outpaced the broad market by several percentage points since early May. The SPDR S&P Capital Markets ETF ( KCE ) has merely traded sideways in that time. One of the industry's companies is mired in a big downtrend but features a big yield. Is there value in shares of AllianceBernstein? Let's weigh the risk and reward opportunities.

Capital Markets Equities Trending Lower As Equities Drop M/M

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.

The Tennessee-based $3.4 billion market cap Capital Markets industry company within the Financial sector trades at a low 10.1 trailing 12-month GAAP price-to-earnings ratio and pays a high 10.4% dividend yield, according to The Wall Street Journal .

Investors need to watch how net flows go with AB. The asset manager's investment fund performance will drive that, and a recent acceleration toward passive products is not a great sign. Mutual funds in general may continue to lose out to ETFs along with fee pressures being key risks. BofA noted that soft 2022 performance in AB's strategies could hurt flows next year. If markets recover, though, that would help trends - and that is what we saw in November with its AUM rising 4.9% . That came after a small EPS beat back in October but a top-line miss.

On valuation, analysts at BofA see earnings falling a whopping 27% in 2022. Another year of per-share earnings declines is seen in 2023, too. Some positive moderation is forecast for 2024, though. The Bloomberg consensus outlook is about on par with what BofA sees.

Dividends are volatile and look to shift alongside volatile earnings. Still, both AB's operating and GAAP P/Es are at decent levels in the low teens. Finally, the yield should remain high but could drop a bit from here. Seeking Alpha rates the stock with an A on valuation , but I am not quite as bullish considering the growth outlook.

AllianceBernstein: Earnings, Valuation, Dividend Yield Forecasts

Looking ahead, corporate event data from Wall Street Horizon show an unconfirmed Q4 2022 earnings date of Friday, February 10. The following week, AllianceBernstein's management team is slated to present at the 24th Annual Financial Services Forum in Florida from February 13 to 15 which could bring about some industry news to drive volatility.

Corporate Event Calendar

The Technical Take

AB remains stuck in a downtrend that began back in November 2021. After spiking above $57 at its all-time high, shares retreated nearly 50% to a low just above $31 in October, around the market low. A key trend reversal signature is seen in how the stock has behaved around its now-falling 200-day moving average. Shares fell below that trend line back in the second quarter and were rejected on two subsequent occasions on rallies during the summer and last month. Investors should wait for a decisive move above the 200-day before calling the downtrend dead.

Based on the downtrend channel support line, there could be a next stop seen in the upper-$20s, which would ultimately bring AB back to its pre-pandemic range that I noted back in October . Shares bounced big after touching the upper end of that support then. Overall, the technical trend remains down, and I would keep an eye on $28 or so for the next move.

AB: Shares Rejected At The 200DMA Again

The Bottom Line

I continue to think AB's valuation is fair and the yield is enticing, but the technicals suggest more downside risks are ahead. I would like to see the stock break the downtrend before getting bullish.

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