SEI Investments Balancing Slowed Revenue Growth With Strong Margins - Analyst Lowers Price Target

Piper Sandler analyst Crispin Love reiterated a Neutral rating on SEI Investments Company SEIC, lowering the price target to $64 from $65. 

According to the analyst, the revenue growth for SEI Investments has slowed over the past several quarters, indicating a concern in the company's financial performance.

Love has lowered the 2023 and 2024 EPS estimates to $3.53 and $4.01 from $3.62 and $4.06, respectively, driven by lower market values as the model is marked to market.

The analyst writes that the revenue growth has been in the low-to-mid single-digit growth range for multiple years. An acceleration in revenue growth is needed to drive the multiple higher and hit its stated long-term goal of doubling revenue.

According to the analyst, risks are associated with lower asset valuations and slower adoption of SEIC's existing or newer solutions, potentially impacting the company's financial performance and growth.

On the positive side, Love appreciates SEI's impressive operating margins across most of its segments.

The analyst notes SEI to be a critical part of the asset management ecosystem, providing key technology to its four main client types: Private Banks, Investment Advisors, Institutional Investors, and Investment Managers.

SEI generated a 23% operating margin in 2Q23 and is forecasting 2023 and 2024 operating margins of 24% and 26%, respectively, showcasing the company's ability to maintain high profitability.

According to Love, over the next several quarters, the key drivers of performance will focus on improving operating margins in its Private Banks segment, driving sales events, and making progress on its longer-term revenue growth goals.

The analyst adds that SEI has a goal of doubling its revenue to $4 billion by 2027-2029. Progress on this goal could cause expansion to the company's current mid-teens multiple if the revenue trajectory improves, indicating potential for significant revenue growth.

Price Action: SEIC shares are trading lower by 2.87% to $57.47 on the last check Tuesday.

Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.