EUR 850.00 For Business Accounts Only

Morningstar | Lazard Has Opportunities for Value-Added Capital Deployment

Narrow-moat Lazard is starting 2019 at a decent pace for the somewhat uncertain macroeconomic environment, and we continue to believe that the company is undervalued. The company reported net income of $97 million, or $0.80 per diluted share, on $644 million of net revenue in the first quarter of 2019. Revenue decreased 14%, and operating income decreased 36% from the first quarter of 2018. The most recent quarter's results are fair in light of the first half of 2018 being exceptionally strong and the increasingly negative economic sentiment that developed in the second half of 2018. For all of 2019, we're still forecasting net revenue to be down a single-digit percentage compared with 2018, as Europe, which accounts for about 35% of revenue, remains soft. We don't anticipate making a material change to our $57 fair value estimate.

While we remain cautious in our near- to medium-term growth projections in the company's advisory and asset-management businesses, the company's capital actions can add value. The company recently issued $500 million of senior debt, raised its quarterly dividend 7% to $0.47 per share, and repurchased over $400 million worth of its shares in the previous two quarters at around $40 per share compared with our assessment of the shares being worth $57. At the end of the first quarter, Lazard had $1.8 billion of senior debt on its balance sheet compared with about $650 million of cash flow before financing activities in 2018, so the company has capacity for additional, accretive capital restructuring or acquisitions. Compared with other publicly traded, independent investment banks, Lazard has a sizable asset-management business, which makes up over 40% of net revenue, so is differentially positioned to further scale this business with acquisitions if we enter an economic downturn.