Lazard stock rating cut to Peer Perform by Wolfe Research

On Friday, Wolfe Research analysts adjusted their stance on Lazard Ltd . (NYSE: NYSE:LAZ), downgrading the investment bank's stock rating from Outperform to Peer Perform. The decision came after a re-evaluation of the company's long-term targets and current valuation.

According to InvestingPro data, Lazard has seen impressive momentum with a 32.7% price return over the past six months, while maintaining a market capitalization of $4.6 billion. Despite Lazard's effective execution in its Advisory segment, analysts at Wolfe Research noted that Lazard's shares had significantly re-rated in 2024, which did not align with the persistent challenges faced by its Asset Management division.

InvestingPro analysis indicates the stock is currently fairly valued, with a P/E ratio of 18.65x and a notably high Price/Book multiple of 7.35x. For deeper insights into Lazard's valuation metrics and over 30 key financial indicators, investors can access the comprehensive Pro Research Report, available exclusively to InvestingPro subscribers.

The analysts at Wolfe Research highlighted that Asset Managers experiencing outflows typically trade at approximately 8 times forward year two earnings per share (FY2 EPS). Their sum-of-the-parts (SOTP) analysis suggests a roughly 12 times blended multiple for Lazard, indicating that the current valuation discount compared to its mergers and acquisitions (M&A) peers may be warranted.

They acknowledged that Lazard's management is actively addressing the net outflows in its Asset Management segment but expressed reservations about predicting an improvement in the new flow outlook.

The report further elaborated that this uncertainty could potentially limit Lazard's leverage in the years 2025 and 2026. As a result, Wolfe Research views Lazard's valuation as full at approximately 12 times their projected earnings per share for 2026. This assessment led to the downgrade of Lazard's stock rating.

Lazard's performance in the Advisory sector was recognized as a positive, with management effectively meeting targets. However, the analysts emphasized that the Asset Management division's challenges, specifically the net outflows, are a significant concern that could impact the firm's future performance and leverage.

Wolfe Research's downgrade reflects a cautious outlook on Lazard's stock, based on the firm's current valuation and the potential limitations on its earnings leverage in the coming years. The analysts' comments and analysis provide a detailed rationale for the revised rating, focusing on the financial metrics and management's efforts to address the issues within the Asset Management division.

In other recent news, Lazard, Inc., a prominent investment advisory firm, has reported a 24% rise in third-quarter adjusted net revenues, reaching $2.1 billion. This growth was primarily driven by a 41% increase in financial advisory revenue, amounting to $369 million, due to robust M&A activity and restructuring services. Despite net outflows, Lazard's Assets Under Management (AUM) also increased, reaching $248 billion, thanks to market appreciation.

Furthermore, Lazard announced significant leadership changes, with Dan Schulman appointed as the new Lead Independent (LON:IOG) Director following the departure of Mr. Richard D. Parsons (NYSE:PSN). Peter R. Orszag is set to assume the role of Chairman of the Board in addition to his current role as CEO, and Kenneth M. Jacobs will transition to Senior Chairman of the Firm and Senior Advisor to the Board. These changes aim to ensure leadership continuity and future success.

Analysts are closely monitoring the potential market impacts of the upcoming U.S. presidential election. The potential for tax cuts and deregulation under a Trump victory could yield a bullish response for equity markets, while a victory for Vice President Kamala Harris could influence different sectors, including homebuilders, healthcare, corporate taxes, and renewable stocks.

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