Multiple Expansion In Asset Managers To Be Limited, Despite Sell-Off: Goldman Sachs

Golman Sachs says, "We expect the theme of volatile markets to dampen 2Q asset manager earnings. We forecast negative organic growth, the first quarter in over a year and our 2Q estimates are 10% below the Street. To be sure, the group (down -19% YTD) repriced the challenging operating backdrop, keeping us Neutral. Still, the lack of flows ought to limit multiple expansion, yet many asset managers trade at premiums to history relative to the SPX. Favor diversified/institutional managers for relative flows strength, idiosyncratic stories for margin gains; and avoiding equity retail concentration. Buy(s): BLK (CL), IVZ, BX, and FIG; Sell(s): FII, JNS and CNS."

"Our top Buys for 2Q10 EPS among traditional asset managers are BLK (CL) and IVZ. We expect benefits of BLK/BGI and IVZ/Van Kampen-MS to begin to surface and valuations are attractive (BLK at 14X and IVZ at 12X 2011E). We see ample value among alternative asset managers. We favor BX and FIG, as valuations reflect little-to-no value for performance fees. JNS is our top Sell idea into earnings where we are 13% below consensus for 2Q given equity retail heavy AUM mix and challenges at INTECH and margin pressure," the analysts add.

The analysts mention, "We upgrade CLMS to Neutral from Sell as the stock now trades below our 12-month price target of $10. Since downgrading CLMS to Sell on 5/24/2010, the stock is down 11.9% versus the S&P 500’s 0.4% decline. CLMS now trades at just 12X forward NTM P/E on our below-consensus estimates – a 33% discount to its historical P/E, leaving little downside despite still soft fundamentals, in our view."

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