Goldman's Symphony Of Ratings: Asset Management Moves For A Dynamic 2024

Goldman Sachs analyst Alexander Blostein revised the rating on several asset management stocks amid an updated outlook for American Capital Markets.

The year-end 2023 rally in risk assets and expectations for lower interest rates have driven investors' enthusiasm for Capital Markets stocks, with the sector up 27% in 2023 on average, led by over 60% gains by Alternative Asset Managers, writes the analyst. 

The analyst expects the capital velocity and transaction activity to improve in 2024 (vs. depressed levels in 2023) but anticipates it to remain below historical averages due to the cumulative effect of a higher cost of capital.

The analyst downgraded Blackstone Inc BX, Charles Schwab Corp SCHW, and Raymond James Financial Inc RJF to Neutral from Buy.

In particular, the analyst downgraded BX due to a slowing management fee growth algorithm and risks to consensus EPS estimates; SCHW, as outlook for lower rates, re-introduced EPS risks into 2024 and pushed the EPS upside case further out; and RJF as rate sensitive asset base enhances EPS risks, with fewer offsets on expenses or capital returns.

Also, Blostein reduced the CME Group Inc CME rating to Sell from Neutral due to cyclical normalization in rate volumes, competitive pressures in Equities and Energy, and lower interest income pressurizing EPS growth.  

On the other hand, the analyst upgraded State Street Corporation STT and Ameriprise Financial Inc AMP to Buy from Neutral. 

STT upgrade reflects a liability-sensitive balance sheet, improving fees/expense dynamics and strong share buybacks, while a durable cash revenue outlook, expense discipline, and a strong share repurchase program led to AMP rating boost.

Overall, Blostein expects to see a wider dispersion in the share price performance in 2024. 

The analyst projects the sector to witness a more constructive EPS growth trajectory in 2024, aided by EPS growth of over 20% Y/Y in Alternative Managers and 14% Y/Y in Retail Brokers in 2024/2023.

Photo via Charles Schwab