Lazard Earnings: Likely To Be Under Pressure for Several More Quarters

The bulk of Lazard LAZ is in a rough part of its business cycle, but the company has prepared to weather it, and there are signs of the very early stages of a recovery. In the second quarter, Lazard reported a net loss to common shareholders of $124 million, or $1.41 per diluted share, on $642 million of net revenue. It had $147 million of charges in the quarter related to cost-saving initiatives; pro forma net income was $23 million, or $0.24 per diluted share. Net revenue increased 1% from a year ago and 27% from the previous quarter; however, it was still 7% lower than the 2022 quarterly average and 19% lower than the 2021 quarterly average. We don’t anticipate making a material change to our $45 fair value estimate for narrow-moat-rated Lazard and assess the shares as modestly undervalued.

Over half of Lazard’s business is financial advisory on matters such as mergers and restructuring. Companies have been anticipating a recession and financing costs have risen for much of the previous one-and-a-half years, so merger activity has significantly slowed. While restructuring activity is often countercyclical to merger activity, the economy has been trudging upward and many companies locked in low interest rates on their corporate debt for years, so restructuring also hasn’t significantly increased. More of the market has shifted toward the perspective of a soft landing for the economy, but it often takes six to nine months between a merger announcement and its closure, when the majority of revenue is recognized, so Lazard and peers won’t see a strong recovery in revenue and earnings for several more quarters. The company has taken steps to weather the low-revenue environment and embarked on a cost-saving initiative that it estimates will reduce its cost base by 10%.