Rating Update: Stock Rating B-Positive (5/21/19)-AllianceBernstein Holding LP (AB).

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BUSINESS

AllianceBernstein Holding L.P. is publicly owned investment manager. The firm also provides research services to its clients. It provides its services to investment companies, pension and profit sharing plans, banks and thrift institutions, trusts, estates, government agencies, charitable organizations, individuals, corporations, and other business entities. The firm invests in public equity, fixed income, and alternative investment markets across the globe. It employs long/short strategy to make its investments. The firm conducts in-house research to make its investments. AllianceBernstein Holding L.P. was founded in 1987 and is based in New York, New York.
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INVESTMENT RATING

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AB’s future returns on capital are forecasted to exceed the cost of capital. Accordingly, the company is expected to continue to be a major Value Builder.

AB has a current Value Trend Rating of B (Positive).
With this rating, PTR’s two proprietary measures of a stock’s current attractiveness are providing consistent signals. AB has a neutral Power Rating of 54 and a slightly positive Appreciation Score of 69, with the Positive Value Trend Rating the result.

AB’s stock is selling well below targeted value. The current stock price of $29.04 compares to targeted value 12 months forward of $47.
This moderately high appreciation potential results in an appreciation score of 69 (only 31% of the universe has greater appreciation potential.)
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AB has a Power Rating of 54. (This neutral Power Rating indicates that AB’s chances of enjoying favorable investment performance over the near to intermediate term are only average.)
Factors contributing to this neutral Power Rating include: earnings estimate behavior for AB has been slightly favorable recently; and recent price action has been neutral. An offsetting factor is is in a slightly weakened position current.

INVESTMENT PROFILE

AB’s financial strength is high. Financial strength rating is 76.
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Relative to the S&P 500 Composite, AllianceBernstein Holding LP has moderate Value characteristics; its appeal is likely to be to investors heavily oriented toward Income; the perception is that AB is lower risk. Low expected growth is a relative weakness for AB. AB’s valuation is low: high dividend yield, low P/E ratio, and low price/book ratio. AB has unusually low market capitalization.

CURRENT SIGNALS

AB’s current operations are strong. Return on equity is rising, reflecting: and improving asset utilization.

AB’s current technical position is mixed. The stock price is in a 1.4 month up move. The stock has appreciated 26.2% from its prior low. The 200 day moving average is in a downtrend. The stock price is above its 200 day moving average. The 200 day moving average has just turned down.

ALERTS

Recent meaningful negative changes in investment behavior have impacted AllianceBernstein Holding LP (NYSE: AB): the stock’s recent price decline challenged its longer term uptrend.
The stock is currently rated B.
AllianceBernstein Holding LP (NYSE: AB) stock suffered a major decline of -10.5% on 5/21/19. The shares closed at $0.56. However, below average trading volume at 70% of normal accompanied the decline. The stock has risen 0.7% during the last week and has performed in line with the market over the last nine months.

CASH FLOW

In 2018, AB experienced a very significant reduction in cash of $0.0 million (). Sources of cash were much lower than uses. Cash generated from 2018 EBITDA totalled +$270.6 million. 2018 non-operating sources contributed no cash. Cash taxes consumed -$28.2 million (-10% of EBITDA). Withdrawal of investment from the business totalled +$53.5 million (+20% of EBITDA). In 2018, debt investors had no impact on cash while equity investors withdrew -$295.9 million (-109% of EBITDA).
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AB’s Non-operating Income, %EBITDA has exhibited little to no overall change over the period. This stability was accompanied by an uptrend for the Alliancebernstein Holding Lp Peer Group. In most years, AB was in the third quartile. Currently, AB is substantially below median at 0% of EBITDA ( $0.0 million).

AB’s Cash Taxes, %EBITDA has experienced a downtrend over the period. This downtrend was accompanied by stability for the Alliancebernstein Holding Lp Peer Group. In most years, AB was in the third quartile. Currently, AB is below median at -10% of EBITDA (-$28.2 million).

AB’s Business Re-investment, %EBITDA has enjoyed a volatile overall uptrend over the period. This improvement was accompanied by an opposite trend for the Alliancebernstein Holding Lp Peer Group. In most years, AB was in the top quartile and second quartile. Currently, AB is upper quartile at +20% of EBITDA (+$53.5 million).

AB’s Debt Investors, %EBITDA has exhibited little to no overall change over the period. This stability was accompanied by a downtrend for the Alliancebernstein Holding Lp Peer Group. In most years, AB was in the second quartile and third quartile. Currently, AB is slightly above median at 0% of EBITDA ( $0.0 million).

AB’s Equity Investors, %EBITDA has suffered a volatile overall downtrend over the period. This downtrend was accompanied by a similar trend for the Alliancebernstein Holding Lp Peer Group. In most years, AB was in the lower quartile and top quartile. Currently, AB is lower quartile at -109% of EBITDA (-$295.9 million).

AB’s Change in Cash, %EBITDA has exhibited little to no overall change over the period. This stability was accompanied by an uptrend for the Alliancebernstein Holding Lp Peer Group. In most years, AB was in the third quartile and second quartile. Currently, AB is slightly below median at 0% of EBITDA ( $0.0 million).
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AB’s Cash, %Revenue has exhibited little to no overall change over the period. This stability was accompanied by a downtrend for the Alliancebernstein Holding Lp Peer Group. In most years, AB was in the lower quartile. Currently, AB is lower quartile at 0%.

PROFITABILITY

AB’s return on equity reached a new post-2009 high in 2018.
This was due to very strong positive trend in pretax operating return and small positive trend in non-operating factors.
The productivity of AB’s assets rose over the full period 2009-2019: asset turnover has enjoyed a very strong overall uptrend.
Non-operating factors (income taxes and financial leverage) had a minor positive influence on return on equity.
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AB’s return on equity is below median (16.1%) for the four quarters ended March, 2019.
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Operating performance (pretax return on assets) is upper quartile (18.0%) reflecting asset turnover that is slightly above median (0.18X) and upper quartile pretax margin (100.0%).
Tax “keep” rate (income tax management) is at median (89.6%) resulting in after tax return on assets that is upper quartile.
Financial leverage (leverage) is lower quartile (1.00X).

GROWTH RATES

There are no significant differences between AllianceBernstein Holding LP’s longer term growth and growth in recent years.
AllianceBernstein Holding LP’s historical income statement growth has been higher than growth in the balance sheet. Revenue growth has exceeded asset growth; earnings growth has exceeded equity growth.

Annual revenue growth has been 7.7% per year. (More recently it has been 15.6%.)

Total asset growth has been -1.5% per year.

Annual E.P.S. growth has been 8.1% per year. (More recently it has been 17.3%.)

Equity growth has been -1.2% per year.

AllianceBernstein Holding LP’s consensus growth rate forecast (average of Wall Street analysts) is 4.6% — in line with the average of the historical growth measures.
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Relative to the Alliancebernstein Holding Lp Peer Group, AB’s historical growth measures are erratic. Revenue growth (7.7%) has been at median. E.P.S. growth (8.1%) has been slightly below median. Equity growth (-1.2%) has been lower quartile. Total asset growth (-1.5%) has been lower quartile.

Consensus growth forecast (4.6%) is slightly above median.
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PRICE HISTORY

Over the full time period, AllianceBernstein Holding LP’s stock price performance has been significantly below market. Between July, 2008 and May, 2019, AllianceBernstein Holding LP’s stock price fell -44%; relative to the market, this was a -75% loss. Significant price moves during the period: 1) July, 2012 – May, 2013: +109%; 2) April, 2010 – July, 2012: -61%; and 3) February, 2009 – April, 2010: +158%.
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TOTAL INVESTMENT RETURNS

Current annual total return performance of 18.7% is above median relative to the S&P 500 Composite.
In addition to being above median relative to S&P 500 Composite, current annual total return performance through April, 2019 of 18.7% is at the upper quartile relative to AllianceBernstein Holding LP Peer Group.

Current 5-year total return performance of 11.7% is slightly above median relative to the S&P 500 Composite.
Through April, 2019, with slightly above median current 5-year total return of 11.7% relative to S&P 500 Composite, AB’s total return performance is at median relative to AllianceBernstein Holding LP Peer Group.
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VALUATION BENCHMARKS

Relative to S&P 500 Composite, AB’s overall valuation is normal. The highest factor, the ratio of enterprise value/revenue, is upper quartile. Ratio of enterprise value/assets is above median. Ratio of enterprise value/earnings before interest and taxes is lower quartile. Price/equity ratio is near the lower quartile. The lowest factor, the price/earnings ratio, is lower quartile.

Relative to AllianceBernstein Holding LP Peer Group, AB’s overall valuation is normal. The highest factor, the ratio of enterprise value/assets, is upper quartile. Ratio of enterprise value/revenue is at median. Price/earnings ratio is at median. Price/equity ratio is slightly below median. The lowest factor, the ratio of enterprise value/earnings before interest and taxes, is below median.
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AB has a major value gap compared to median valuation. For AB to fall to lower quartile valuation, its current ratio of enterprise value/revenue would have to decline from the current level of 10.71X to 6.43X. If AB’s ratio of enterprise value/revenue were to decline to 6.43X, its stock price would be lower by $-12 to $17.
For AB to achieve upper quartile valuation relative to the AllianceBernstein Holding LP Peer Group, its current ratio of enterprise value/revenue would have to rise from the current level of 10.71X to 14.97X. If AB’s ratio of enterprise value/revenue were to rise to 14.97X, its stock price would increase by $12 from the current level of $29.

VALUE TARGETS

AB’s future returns on capital are forecasted to exceed the cost of capital. Accordingly, the company is expected to continue to be a major Value Builder.
AllianceBernstein Holding LP’s current Price Target of $49 represents a +70% change from the current price of $29.04.
This moderately high appreciation potential results in an appreciation score of 69 (only 31% of the universe has greater appreciation potential.)
Reinforcing this moderately high Appreciation Score of 69, the neutral Power Rating of 54 contributes to an Value Trend Rating of B.
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AllianceBernstein Holding LP’s current Price Target is $49 (+26% from the 2018 Target of $39 and +70% from the 05/21/19 price of $29.04). This rise in the Target is the result of a +1% increase in the equity base and a +25% increase in the price/equity multiple. The forecasted increase in return on equity has a very large positive impact on the price/equity multiple and the forecasted increase in growth has a slight positive impact as well. Partially offsetting these Drivers, the forecasted increase in cost of equity has a slight negative impact.
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PTR’s return on equity forecast is 18.9% — slightly above our recent forecasts. Forecasted return on equity enjoyed a dramatic, variable increase between 2010 and 2018. The current forecast is significantly above the 2011 low of 7%.

PTR’s growth forecast is 3.0% — in line with our recent forecasts. Forecasted growth enjoyed a dramatic, erratic increase between 2014 and 2018. The current forecast is below the 2016 peak of 5%.

PTR’s cost of equity forecast is 8.2% — above recent levels. Forecasted cost of equity suffered a dramatic, steady increase between 2010 and 2018. The current forecast is well above the 2011 low of -0.0%.
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At AllianceBernstein Holding LP’s current price of $29.04, investors are placing a negative value of $-5 on its future investments. This view is not supported by the company’s most recent performance that reflected a growth rate of 2.0% per year, and a return on equity of 15.4% versus a cost of equity of 7.6%.
PTR’s 2020 Price Target of $49 is based on these forecasts and reflects an estimated value of existing assets of $39 and a value of future investments of $11.

About John Lafferty 47332 Articles
During his career, John has developed valuation and stock rating methodologies, managed institutional portfolios and mutual funds, and provided equity research to institutional investors on thousands of companies. He has been Director of Research at PTR since its inception in 2004.

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