AMERIPRISE FINANCIAL USED ALMOST $2 billion during the financial crisis to speed its transformation from an insurer into one of the world's biggest money managers. Oddly, investors don't seem fully aware of the change.
Although the shares (AMP) are up 34% to 52.20 in 2010, investors still accord the American Express spin-off a multiple closer to that of an insurer than an asset manager. Ameriprise stock trades at a paltry 10 times 2011 consensus earnings estimates of $5.20 a share, compared with 12.9 times for Invesco (IVZ) and 13.5 times for Federated Investors (FII). Principal Financial Group (PFG) trades at 9.9 times its 2011 estimates, while Prudential Financial (PRU) changes hands at 8.4 times.
That's prompted a number of value investors to load up on Ameriprise. Richard Barone, manager of the Ancora Equity Fund (ANQCX), says the "shares could easily move into the mid-60s as the multiple expands," even if it's not a straight trajectory. Another bull, Mark A. Boyar, president of Boyar Asset Management, sets a sum-of-the-parts valuation at $66 a share, about 26% above recent levels.
Enthusiasm for the stock mostly stems from Ameriprise's purchase of three money managers in the midst of the financial crisis: Columbia Asset Management, for $1 billion; J.&W. Seligman, for $440 million, and H&R Block Financial, for $315 million. "Our ability to maintain a strong balance sheet and good liquidity throughout the financial crisis, plus not taking government aid, made it possible for us to pursue these opportunities," says James Cracchiolo, CEO of Ameriprise. In all, the firm brought in $224 billion in new assets, lifting the total under management to $445 billion and making it among the 25 biggest asset managers in the world.
The most important deal was for Columbia's equity and debt funds, which oversaw $165 billion for embattled Bank of America. It got a good deal so long as it can stem Columbia's fund outflows. Boyar marvels that Ameriprise paid the equivalent of 0.6% of assets. In the same month, Lehman Brothers was able to sell its Neuberger Berman money management group for 1% of assets.
As a result, the insurance business, which includes annuities and protection insurance policies covering life, property and autos, now makes up 44% of consolidated revenue and 67% of pretax profits; as recently as 2005, the more capital-intensive insurance business kicked in 46% of revenue and 82% of profit. Ameriprise ultimately wants the asset-management and wealth-advisory businesses to generate about 60% of profit, according to a recent report from Sanford C. Bernstein analyst Suneet Kamath.
More From Barron's Interactive Brokers' Trades in November Rise 9%; 2nd Best Month in 2 Years Credit Suisse Tech Investors See Modest Rally At End Of Year First Actively Run Junk Bond ETF Faces Uphill Battle
Trackback URL for this story: http://www.smartmoney.com/tb/Jdym.2BN8.3D
What is a Trackback?It is a way to tell us that you have published something that references this story.
How do I send a Trackback? If you blog or mention this story on your website, you can use this Trackback URL to notify us about it. Some blogging software programs can help in sending a Trackback to us.
Click here to read more about Trackbacks.
Ameriprise: Misunderstood and Undervalued http://dlvr.it/9XNRv
Unlike a simple calculator or worksheet, lifeplan provides step-by-step actions to help you put - and keep - your financial house in order.
This award winning column addresses estate planning, individual retirement accounts, long-term-care insurance and strategies for selecting variable annuities.
Read Full Article »