Wednesday, Credit Suisse upgraded Affiliated Managers Group Inc. (AMG) shares to Outperform from Neutral and increased its price target to $69 from $64. The brokerage raised its 2009 EPS estimate to $4.30 from $4.26, and its 2010 estimate to $5.06 from $4.96.
Analyst Siegenthaler noted that while his estimates are in-line with 2009 consensus of $4.28 and 2010 consensus of $5.06, his estimates assume zero acquisitions in second half of 2009. However, the analyst believes 1 to 3 deals are more probable, with each deal adding about 20 cents on average to EPS.
The analyst believes the discounted valuation, 12.7x 2010 vs. 18.8x for group, does not properly embed the potential for second half of 2009 deal accretion, estimate AMG could close 1 to 3 accretive acquisitions, and flows to turn positive in second half of 2009.
The analyst estimates that the stock will react positively to future EPS accretive acquisitions now that the large war chest is secure, $200 million equity forward sale last month increases dry powder to $1.3 billion, and as flows improve in third quarter of 2009 and fourth quarter of 2009, the valuation will normalize closer to the peer group average, 15% discount vs. 35% discount currently. With management guidance of $4 to $4.50 in 2010, improved markets, flows, and performance could drive a positive surprise.
Currently, AMG is up $3.63 or 5.79% and trading at $66.30.
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