With conference season kicking off this week, we wanted to share a few files that we thought might be helpful. The first is our Question Bank, which includes both company specific and general questions for all of the firms in our coverage presenting and/or participating in 1x1s. We also included some Guidance Tearsheets which compare our modeled forecasts to each piece of company guidance in an easy-to-read format. Please feel free to use us as a resource in case you need anything ahead of your meetings.
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LAZ reported 4Q18 of $0.94 vs. our $0.97 and cons. of $0.92, with revenue beat in Financial Advisory and better comp leverage offsetting weaker results in Asset Management and higher non-comps. While results came in ahead of cons., shares were weak following the print as outlook commentary was not particularly encouraging, with LAZ trading down as much as -7% intraday before finishing down -4% (vs. flat S&P Fins.). Looking ahead, outlook commentary on Financial Advisory and Asset Management businesses suggest revenue growth should be limited in 2019 (we model ~4% decline), which, coupled with higher investments in digital, and slightly higher tax rate, support YoY EPS declines of ~8%. We maintain our Peer Underperform rating given downside risk to cons. but note that following the recent decline in shares, risk / reward has improved.
LAZ reported 4Q18 EPS of $0.94, below our $0.97 but above cons of $0.92. Vs. our estimate, the miss was driven by elevated tax rate (-$0.05) higher non-comps (-$0.10), weaker Asset Management revenue (-$0.03; including $3.2bn of outflows on -11% decline in AUM); and lower other revenue (-$0.01). This more than offset better Financial Advisory (+$0.03), lower comp ratio (+$0.12), and lower sharecount (+$0.01). Bottom line: While the quarter included a number of positives (strong comp discipline, better fees in financial advisory), and a lower sharecount should result in modest positive flow-through to 2019 cons., LAZ shares have outperformed meaningfully over the past week (+6%, >500bps ahead of S&P Fins.) in anticipation of a stronger 4Q print, especially following the impressive beat at EVR. More muted Advisory beat, coupled with disappointing Asset Mgmt. fee trends, should drive a more muted share reaction.
This week our WR Diversified Banks & Brokers Index was up +10bps, trailing the broader market (+160bps) but tracking largely in line with the S&P Fins. (+10bps). We saw meaningful dispersion in terms of share performance as the Retail Brokers and M&A firms were powered by strong 4Q results / favorable guidance, with LPLA (+7%) and EVR (+6%) clear standouts. The biggest laggards this week were the asset sensitive banks and capital markets firms, including BAC (-4%) and MS (-3%). While bank / broker shares took a breather this week, YTD performance has been strong, particularly at those firms which underperformed by a wider margin in 4Q18 but reported strong results including EVR (+26%), LPLA (+23%), and Citi (+22%), while mixed 4Q results have weighed on performance at JPM (+6%), WFC (+6%) and MS (+5%).
This week our WR Diversified Banks & Brokers Index was down modestly (-30bps), largely in line with the S&P Fins. (flat) and the broader market (-20bps). Share trends over the last week were quite bifurcated, with STT (+2%), AMTD (+2%), Citi (+1%), and BAC (+1%) the relative winners and ETFC (-6%), EVR (-2%), and MS (-2%) the laggards. That said, YTD performance remains quite strong, with our index outpacing the S&P 500 by ~700bps. Citi (+23%), BAC (+20%) and GS (+20%) have been clear winners so far, while LAZ (+5%), JPM (+6%), and MS (+8%) have been the relative laggards. As we approach the end of 4Q earnings season, we wanted to highlight some key debates on select stocks:
This week our WR Diversified Banks & Brokers Index was up +7%, slightly outpacing the S&P Fins. (+6%) but tracking well ahead of the broader market (+3%). The move higher was led by broad-based strength across the group, with GS (+14%), BAC (+13%), Citi (+11%), and BK (+10%) the clear winners following encouraging 4Q results / commentary. Relative laggards over the last week were WFC (+4%), JPM (+5%), and MS (+5%).
This week our WR Diversified Banks & Brokers Index was up +2.7%, slightly outpacing the broader market (+2.5%) and tracking ahead of the S&P Fins. (+1%). The move higher was led by the Regional Brokers (+7%), with the M&A Independents (+1%) and Universal Brokers (+1%) lagging the rest of the group.
This week our WR Diversified Banks & Brokers Index was up +4%, outpacing S&P Fins. (+3%) and the broader market (+2%). The move higher was led by the Universal brokers (+6%) and M&A Independents (+6%), with the Trusts (+2%) and Regional Brokers (+2%) lagging the rest of the group. The big stock winner this week was EVR (+8%) which benefited from winning the Bristol / Celgene advisory mandate (~$20mm fee, per Dealogic).
Two more rate hikes in 2019. Fed balance sheet unwind poised to continue. Investors banging their heads against a wall that’s now in the House budget plan. It was a tough week for the market (-7%), though our Wolfe Diversified Banks & Brokers Index did fare a bit better (-4% WoW). LPLA (-2%) and WFC (-3%) were relative outperformers, and BK (-8%), SF (-8%), C (-9%), and EVR (-10%) all lagged. With fewer than five trading sessions before we close out the year it is increasingly likely the market finishes in the red (-10% YTD). The performance has been even worse for our coverage which is down -23% YTD, with LPLA the clear standout (+2%), and GS (-37%) and STT (-38%) the biggest laggards.
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