Affiliated Managers Valuation Shows The Market Underappreciates Its Pipeline And Earnings Growth

The market seems to be “significantly underappreciating” Affiliated Managers Group, Inc’s AMG large acquisition pipeline and future EPS growth potential, Credit Suisse’s Craig Siegenthaler said in a report. He maintained an Outperform rating on the company, with a price target of $212.

Acquisition Pipeline

Analyst Siegenthaler expects Affiliated Managers to deploy $5 billion of capital into EPS accretive acquisitions over the forthcoming five years, and grow the number of affiliates to between 55 and 65. He believes the company’s capital deployment would be front-end loaded into 2H16-2018, in view of the meaningful opportunities available.

“While AMG historically has not announced many deals in the summer months, November, December, and January are three of the most "probable" months for acquisition announcements,” Siegenthaler noted.

Growth Prospects

The analyst estimated Affiliated Managers’ five-year annualized cash EPS growth at ~15 percent. He mentioned that this would be driven by “the compounding effect of reinvesting and growing free cash flow through acquisitions and positive organic growth.” Affiliated Managers would likely generate growth that is 5-10 percent above the industry average.

Siegenthaler commented that Affiliated Managers is “the best way to play the theme of industry consolidation,” while adding that the company’s two public M&A competitors, Legg Mason Inc LM and OM Asset Management PLC OMAM were currently integrating large acquisitions and hence may not consider M&A for some time.

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