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Cohen & Steers Earnings: Interest-Rate Headwinds Continue To Affect Flows and Market Gains

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There was little in narrow-moat Cohen & Steers’ CNS second-quarter results that would alter our long-term view of the firm. We are leaving our $70 per share fair value estimate in place. We view the shares as only being slightly undervalued right now.

Cohen & Steers closed out the June quarter with $80.4 billion in total assets under management, up 0.6% sequentially but still down 8.5% on a year-over-year basis. Net outflows (exclusive of distributions) of just over $1.0 billion since the start of the year were indicative of organic AUM growth of negative 2.5%, well off the positive 5.8% CAGR for organic AUM growth that the firm generated during 2018-22. That said, net flows did turn positive during the month of June and could be far less negative during the remainder of the year, as it seems that the Federal Reserve is winding down its path of rate hikes, which should improve the outlook for REIT securities in the near to medium term.

With average AUM down 16.5% year over year, second-quarter revenue declined 18.2% when compared with the prior year’s period. First-half revenue was also down 18.2% when compared with 2022 levels. We continue to expect revenue to decline at a 10%-15% rate this year, as Cohen & Steers should post better top-line results in the back half of the year as it laps more difficult 2022 results in the third and fourth quarters. Our five-year forecast (which includes an equity market correction midway through our projection period) has revenue growing at a low-single-digit rate on average annually.

As for profitability, the company’s adjusted GAAP operating margins of 37.3% during the first half of 2023 were 675 basis points lower than 2022 results, reflecting the negative side to the operating leverage in the asset manager’s business model. Even so, we are projecting Cohen & Steers’ profitability to recover over the next five years, with adjusted GAAP operating margins in a 39%-43% range, compared with 41.5% on average during 2018-22.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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Greggory Warren

Strategist
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Greggory Warren, CFA, is a strategist for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He covers the traditional U.S.-and Canadian-based asset managers, as well as Berkshire Hathaway.

Before assuming his current role in 2017, Warren covered the financial-services sector as a senior analyst since late 2008. Prior to that time, he covered non-alcoholic beverage manufacturers and distributors, packaged food firms, food service distributors, and tobacco companies. Before joining Morningstar in 2005, Warren worked as a buy-side equity analyst for more than seven years, covering consumer staples and consumer cyclicals.

Warren holds a bachelor's degree in accounting and English from Augustana College. He also holds the Chartered Financial Analyst® designation and is a member of the CFA Society of Chicago. During 2014-19, Warren was selected to participate on the analyst panel at Berkshire Hathaway’s annual meeting, asking questions directly of Warren Buffett and Charlie Munger. The analyst panel was disbanded ahead of Berkshire’s 2020 annual meeting. Warren also ranked second in the investment services industry in The Wall Street Journal’s annual “Best on the Street” analysts survey in 2013, the last year the survey was conducted.

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