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On Monday, Morgan Stanley (NYSE:MS) upgraded SEI Investments (NASDAQ:SEIC) stock rating from Underweight to Overweight, despite a reduction in the price target to $77.00 from $81.00. SEI Investments, a firm that processes investments and services assets totaling $1.6 trillion for various financial entities, has been recognized for its defensive positioning within the capital markets sector. According to InvestingPro data, the company maintains strong profitability with a 79% gross margin and trades at an attractive PEG ratio of 0.55, suggesting good value relative to its growth potential.
The upgrade by Morgan Stanley reflects a positive outlook on SEI’s strategic direction and its potential for growth. According to the firm’s analysts, SEI Investments is in the midst of a turnaround, focusing on enhancing net new sales and improving its pre-tax margin. The company has reported a significant 60% increase in net new sales, from $81 million in 2023 to $128 million in 2024. This growth is seen as a key indicator of progress and is attributed to SEI’s expanded offerings in alternatives and asset managers, as well as its straight-through processing solutions. InvestingPro analysis indicates the stock is currently trading below its Fair Value, with 8 additional ProTips available to subscribers, including insights on the company’s financial health and growth prospects.
SEI’s approach to providing highly customized offerings has resulted in a client base with sticky fee rates, which means the company experiences less fee rate compression over time when compared to other investment service providers. This aspect of SEI’s business model is particularly appealing to Morgan Stanley, as it suggests a sustainable revenue stream.
Furthermore, SEI Investments is noted for its strong financial position, highlighted by a robust balance sheet that includes cash and assets making up 32% of the total, with an absence of debt. Looking ahead, Morgan Stanley projects a payout ratio of 101% for SEI in 2025, which includes a dividend payout ratio of 22% and a buyback payout ratio of 79%. This financial strategy underscores SEI’s commitment to returning value to its shareholders.
In other recent news, SEI Investments reported a 31% year-over-year increase in earnings per share (EPS) for the fourth quarter of 2024, reaching $1.19, slightly below the forecast of $1.21. The company’s revenue for the same period was $557.2 million, surpassing expectations of $555.6 million. Additionally, SEI Investments has expanded its stock repurchase program by $500 million, bringing the total authorization to approximately $556 million, reflecting its commitment to enhancing shareholder value. In a strategic move, Aquiline Capital Partners (WA:CPAP) LP has agreed to acquire SEI’s Family Office Services unit for $120 million, with the deal expected to close in the latter half of the second quarter of 2025. Meanwhile, Raymond (NSE:RYMD) James has adjusted SEI Investments’ price target from $99 to $94 but maintained an Outperform rating, citing the company’s improved sales activity and expense management. SEI also announced an expansion of its strategic partnerships to enhance advisor efficiency, including collaborations with Nifty, Jump, and TIFIN Wealth. These developments indicate SEI’s efforts to navigate market challenges and capitalize on growth opportunities.
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