EUR 850.00 For Business Accounts Only

Morningstar | Recently, Lazard's asset management segment appears to be weighing the stock down.

In the medium term, we still think there’s still a little more juice to this M&A cycle from increased non-U.S. activity, as Europe and other parts of the global economy didn’t have as strong of a deal uptrend after the financial crisis compared with the United States. Lazard has historical roots in Europe, so it will participate more in an European upturn than more U.S.-focused advisory firms. 2018 could also be a strong year for the firm, as pent-up demand from previous uncertainties, such as U.S. tax reform, is released and the global economy continues growing. That said, a fall in restructuring activity may offset quite a bit of the growth in acquisition-related financial advisory in the near term.Lazard’s asset management business will continue to add to earnings stability and returns. While some might view Lazard's recent adjusted operating margins of around 25% as a peak, we believe they are sustainable. In the long run, in any decent economic scenario, we believe Lazard will naturally have 25%-plus operating margins, thanks to the asset-management business being a larger proportion of revenue and the leverage in noncompensation expenses. Asset management has grown as a percentage of revenue to around 50%, which should increase the company’s overall operating margins and earnings consistency. The asset management business’ international focus has demonstrated more resilience to fee pressure than more U.S.-focused asset managers.Overall, the combination of a strong acquisition advisory, restructuring advisory, and asset management business leads to one of the more stable businesses in the financial services sector. Given that some view asset valuations as stretched and that a recession or a downturn in the capital market cycle may be around the corner, the company’s business model and earnings should be more resilient than more pure-play advisory investment banks or asset managers.