Rating Update: Stock Rating B-Positive (12/3/19)-AllianceBernstein Holding LP (AB).

out_logo_500#02148.jpg

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.
out_plist#02148.jpg

INVESTMENT RATING

out_map1#02148.jpg

Reflecting future returns on capital that are forecasted to exceed the cost of capital, AB is expected to continue to be a major Value Builder.

AB has a current Value Trend Rating of B (Positive).
The Value Trend Rating reflects inconsistent signals from PTR’s two proprietary measures of a stock’s attractiveness. AB has a good Appreciation Score of 76 but a neutral Power Rating of 48, and the Positive Value Trend Rating results.

AB’s stock is selling well below targeted value. The current stock price of $28.40 compares to targeted value 12 months forward of $52.
This high appreciation potential results in an appreciation score of 76 (only 24% of the universe has greater appreciation potential.)
out_pt#02148.jpg

AB has a Power Rating of 48. (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: is in a slightly weakened position current; and earnings estimate behavior for AB has been slightly negative recently. An offsetting factor is recent price action has been neutral.

INVESTMENT PROFILE

AB’s financial strength is high. Financial strength rating is 81.
out_pfit1#02148.jpg

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.

ALERTS

AllianceBernstein Holding LP (NYSE: AB) suffers from notable negative changes in investment behavior: the stock’s recent price decline challenged its longer term uptrend.
Recent slight negative changes in fundamentals have impacted AllianceBernstein Holding LP (NYSE: AB): significant quarterly sales deceleration occurred.
The stock is currently rated B.
AllianceBernstein Holding LP (NYSE: AB) stock closed at $0.12 on 12/3/19 after a major decline of -28.4%. Moreover, above average trading volume at 137% of normal accompanied the decline. The stock has declined -2.7% 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 pulled out -$295.9 million (-109% of EBITDA).
out_cflow.1#02148.jpg

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 and second 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 a similar trend for the Alliancebernstein Holding Lp Peer Group. In most years, AB was in the top 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 stability for the Alliancebernstein Holding Lp Peer Group as well. 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 second quartile and third quartile. Currently, AB is slightly above median at 0% of EBITDA ( $0.0 million).
out_cflow.2#02148.jpg

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 has improved very significantly since 2009.
This very significant improvement 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.
out_dpgrfs3#02148.jpg

AB’s return on equity is at median (15.0%) for the four quarters ended September, 2019.
out_dpgrfs3.2#02148.jpg
Operating performance (pretax return on assets) is at the upper quartile (16.8%) reflecting asset turnover that is slightly above median (0.17X) and upper quartile pretax margin (100.0%).
Tax “keep” rate (income tax management) is at median (89.1%) 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 7.5% per year. (More recently it has been 15.1%.)

Total asset growth has been -1.4% per year.

Annual E.P.S. growth has been 8.0% per year. (More recently it has been 17.1%.)

Equity growth has been -1.1% per year.

AllianceBernstein Holding LP’s consensus growth rate forecast (average of Wall Street analysts) is 3.7% — in line with the average of the historical growth measures.
out_growthgrf#02148.jpg

Relative to the Alliancebernstein Holding Lp Peer Group, AB’s historical growth measures are erratic. Revenue growth (7.5%) has been at median. E.P.S. growth (8.0%) has been below median. Equity growth (-1.1%) has been lower quartile. Total asset growth (-1.4%) has been lower quartile.

Consensus growth forecast (3.7%) is slightly below median.
out_growthgrf.2#02148.jpg

PRICE HISTORY

Over the full time period, AllianceBernstein Holding LP’s stock price performance has been below market. Between February, 2009 and December, 2019, AllianceBernstein Holding LP’s stock price rose +133%; relative to the market, this was a -45% 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%.
out_price#02148.jpg

TOTAL INVESTMENT RETURNS

Current annual total return performance of 10.2% is below median relative to the S&P 500 Composite.
In addition to being below median relative to S&P 500 Composite, current annual total return performance through October, 2019 of 10.2% is below median relative to AllianceBernstein Holding LP Peer Group.

Current 5-year total return performance of 10.4% is slightly below median relative to the S&P 500 Composite.
Through October, 2019, with slightly below median current 5-year total return of 10.4% relative to S&P 500 Composite, AB’s total return performance is slightly below median relative to AllianceBernstein Holding LP Peer Group.
out_quartret#02148.jpg

VALUATION BENCHMARKS

Relative to S&P 500 Composite, AB’s overall valuation is low. 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 at 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/equity ratio is at median. Ratio of enterprise value/earnings before interest and taxes is slightly below median. The lowest factor, the price/earnings ratio, is near the lower quartile.
out_tradv#02148.jpg

AB has no value gap compared to the median. For AB to achieve median valuation, its current ratio of enterprise value/revenue would have to fall from the current level of 11.12X to 11.09X. If AB’s ratio of enterprise value/revenue were to fall to 11.09X, its stock price would be lower by $-0 to $28.
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 11.12X to 15.71X. If AB’s ratio of enterprise value/revenue were to rise to 15.71X, its stock price would increase by $12 from the current level of $28.

VALUE TARGETS

Reflecting future returns on capital that are forecasted to exceed the cost of capital, AB is expected to continue to be a major Value Builder.
AllianceBernstein Holding LP’s current Price Target of $52 represents a +84% change from the current price of $28.40.
This high appreciation potential results in an appreciation score of 76 (only 24% of the universe has greater appreciation potential.)
With this high Appreciation Score of 76, the neutral Power Rating of 48 results in an Value Trend Rating of B.
out_vc#02148.jpg

AllianceBernstein Holding LP’s current Price Target is $52 (+33% from the 2018 Target of $39 and +84% from the 12/03/19 price of $28.40). This dramatic rise in the Target is the result of a +1% increase in the equity base and a +32% 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.
out_wc.1#02148.jpg
out_wc.2#02148.jpg

PTR’s return on equity forecast is 20.0% — 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 8.3% — 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%.
out_vc.2#02148.jpg
At AllianceBernstein Holding LP’s current price of $28.40, 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 $52 is based on these forecasts and reflects an estimated value of existing assets of $41 and a value of future investments of $11.

About John Lafferty 54938 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.

Be the first to comment

Leave a Reply

Your email address will not be published.


*


This site uses Akismet to reduce spam. Learn how your comment data is processed.