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Morningstar | Modest Outflows and Market Gains Keep Cohen & Steers on the Path to Better Near-Term Results in 2Q. See Updated Analyst Note from 17 Jul 2019

There was little in narrow-moat-rated Cohen & Steers' second-quarter results that would alter our long-term view of the firm. We are leaving our $44 per share fair value estimate in place. The company closed out the June quarter with $62.4 billion in total assets under management, or AUM, down 0.4% sequentially but up 3.6% on a year-over-year basis. Net outflows of $13 million were driven primarily by institutional outflows from global/international real estate funds by some of Cohen & Steers Asian (ex-Japan) clients, offset in the most part any open-end fund inflows into U.S. real estate and preferred securities strategies. We continue to forecast full-year organic growth in a 2%-4% range, driven by continued demand for real estate and other alternatives.

While average AUM was up 3.6% year over year, revenue increased 7.8% when compared with the second quarter of 2018, much of which was due to an improvement in the firm's realization rate to 0.5811% (from 0.5751%) owing to favorable changes in product and channel mix. First-half revenue growth of 3.8% was in line with our full-year forecast for a low-to-mid-single-digit increase in Cohen & Steer's top line during 2018. As for profitability, the firm's first-half operating margins of 37.5% were a step down from 38.9% in the year ago period, as higher compensation costs ate into margins.

Although the firm does have around $4.50 per share in cash on hand (composed of cash and cash equivalents and U.S. Treasuries), which would help support a special annual dividend, a strategic acquisition or increased share repurchases, the stock itself is trading more than 15% above our fair value estimate, having run up in value more than 50% since the start of the year, leaving it in overvalued territory.