AllianceBernstein: Value, growth and yield

With a 7 percent dividend yield and an undervalued stock, this asset management firm has begun a major turnaround.

By Nov 12, 2013 11:43AM
MoneyShow.comFinancial Stock Chart © Kick Images, Photodisc, Getty ImagesBy J. Royden Ward, Cabot Benjamin Graham Value Investor

AllianceBernstein Holding LP (AB), a master limited partnership, is one of the largest U.S. investment advisors. It actively manages stock and bond accounts for institutions, mutual funds and well-heeled clients.

France-based AXA owns 61 percent of AllianceBernstein units and one-third of AllianceBernstein’s assets under management belong to clients domiciled outside the U.S.

In my view, AllianceBernstein has begun a major turnaround. The company produced weak sales and earnings from 2008 through mid-2012, caused by poor investment advice to its debt and equity institutional clients.

During the past 12 months, though, the company’s investment advice to clients has been among the best in the industry. Its new success has attracted many new clients seeking market-beating returns in the equity and debt markets.

Sales advanced 7 percent and EPS rebounded 65 percent during the 12 months ended 9/30/13. Lower costs and higher performance fees helped earnings to surge.

Improved inflows into the company’s target date retirement funds and strong sales in Asian operations will help push revenues and earnings higher during the next 12 months.

The company’s turnaround should strengthen during the next 12 months. My forecast includes a revenue increase of 10 percent and an EPS jump of 27 percent to $2.01.

During the most recent quarter, revenues were unchanged because of slow demand for bonds due to the debt ceiling fiasco and uncertainty over the direction of U.S. interest rates.

The lackluster sales caused the stock price to stagnate, thereby offering you an excellent opportunity to buy the shares.

The dividend, which is directly correlated to profits, is now 85 percent higher than a year ago, and provides a high yield of 7.0 percent. Dividend payments should climb further during the next 12 months.

AB shares are clearly undervalued. I expect the stock price to reach my minimum sell price target of $33.33 within two years.

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Nov 12, 2013 3:00PM
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