2023-10-16 05:05:00 ET
Summary
- Earnings season is in full swing, providing insight into the state of corporate profits.
- Ameriprise Financial, a diversified financial services company, is set to release its Q3 earnings next week.
- AMP has a low valuation, strong balance sheet, rising yield, and a history of stock buybacks, making it an attractive investment.
- I outline key price levels to watch on the chart.
Earnings season kicks into high gear this week and next. Goldman Sachs notes that 79% of S&P 500 companies and market cap will have reported by November 3rd, so the next few weeks are prime time for a gauge on the state of corporate profits. Companies in the Financials sector continue to issue results this week, with names like Bank of America ( BAC ) and American Express ( AXP ) reporting Q3 numbers. Next week, a smaller name in the sector with impressive long-term relative strength and a low valuation delivers its third-quarter numbers.
I have a buy rating on Ameriprise Financial ( AMP ) for its low valuation, strong balance sheet, rising yield, and history of stock buybacks.
Earnings on Tap this Week
According to Bank of America Global Research, Ameriprise Financial is a diversified financial services company with a 125-year history and was created from a tax-free spinoff from American Express in 2005. The company contains three main businesses including its industry-leading wealth manager with more than 10,000 financial advisors, a $700B AUM asset manager, and an insurance company.
The Minneapolis-based $33 billion market cap Asset Management and Custody Banks industry company within the Financials sector trades at a low 14.8 trailing 12-month GAAP price-to-earnings ratio and pays a near-market 1.7% forward dividend yield. Ahead of earnings due out next week, shares trade with a modest implied volatility percentage of 28% and the firm has beaten EPS estimates in each of the past 12 quarters. Short interest is low with AMP at just 0.7% as of October 13, 2023.
Ameriprise has morphed from an insurance-focused firm to a pure asset management business. A lower-risk model has proved beneficial as earnings have increased over the years while shareholder-accretive activities have been strong. Back in July, AMP reported better-than-expected Q2 earnings. EPS verified at $7.44 versus the consensus forecast of $7.39. Revenue jumped more than 10% from year-ago levels, also modestly topping analysts' estimates. Assets under management climbed to $1.3 trillion, a 9% annual increase, due to robust client net inflow and higher stock and bond prices. Along with the positive earnings surprise, the management team announced a dividend of $1.35 - the payout was raised in April.
The strong quarter was the result of higher net investment income ((NII)) due to lower deposit costs in its wealth management operations. It was not all ideal as the company encountered lower net new assets in WM and asset outflows within the Institutional channel. Still, rising yields should generally benefit Ameriprise since client cash should flow in from other banks. A key risk, however, is lower stock and bond market prices, pressuring fee-related revenue. More broadly, strong organic growth is coupled with AMP's consistent share repurchase plan - both beneficial for shareholders.
On valuation , analysts at BofA see earnings rising sharply this year, and per-share profit growth is expected to continue into the out years, at a double-digit pace. The consensus estimate, according to Seeking Alpha, suggests the analyst community is not quite as sanguine about earnings growth. Still, AMP's low valuation and rising dividend are positive aspects. The firm has also weathered the higher rate environment well.
Ameriprise Financial: Earnings, Valuation, Dividend Yield Forecasts
If we apply an 11 multiple on normalized EPS of $35, then shares should be near $385. I assert that valuation is conservative given the growth outlook, but I cannot ignore that AMP's 5-year average P/E is slightly under 11. Moreover, the insurance-industry peers generally trade cheaper while traditional asset managers are priced more richly, so taking a moderate multiple approach is prudent in my view.
AMP: Compelling Valuation Metrics
Compared to its peers, AMP features a poor valuation rating, but that is largely driven by its price-to-book ratio which is not the best measure of a wealth manager. Growth, meanwhile, is stout and Ameriprise is highly profitable . Share-price momentum has been strong for much of 2023, and if you back out further on the total return chart, you will find that AMP has been a secular winner while maintaining a modest valuation. EPS revisions , however, have been tepid lately, perhaps due to weaker stock and bond markets.
Competitor Analysis
Looking ahead, corporate event data provided by Wall Street Horizon shows a confirmed Q3 2023 earnings date of Wednesday, October 25 AMC with a conference call the following morning. You can listen live here . No other volatility catalysts are seen on the calendar.
Corporate Event Risk Calendar
The Technical Take
With an attractive valuation and positive growth outlook, the chart also suggests more upside may be in the offing. Notice in the graph below that AMP is currently consolidating in a bullish ascending triangle pattern. Resistance is at an all-time high of $358 - a double top from February and July. I see support at an uptrend line from the July 2022 nadir. Take a look at how AMP bottomed out in advance of the S&P 500's low that took place last October. There is further support in the $275 to $280 range - the lows from March and May this year. If we get a bullish upside breakout, then a measured move price objective of about $430 would be in play based on the height of the triangle pattern.
In terms of trends, the long-term 200-day moving average remains higher, though its rate of change has been slowing. I still expect the consolidation to resolve in the trend of larger degree - up. Overall, with high volume by price under the current stock price, retreats should be buying opportunities, and a breakout above $360 would be particularly bullish.
AMP: Bullish Ascending Triangle Target $430. $275 Support.
The Bottom Line
I have a buy rating on Ameriprise Financial. The valuation is compelling while its growth trajectory is likewise attractive. The chart features decent absolute and relative strength, suggesting more upside to come.
For further details see:
Ameriprise: Strong Earnings Trends, High Growth Expected, Favorable Technicals