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Cohen & Steers: Fair Value Estimate Lowered to $53 due to Market Headwinds and Increased Competition

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We have lowered our fair value estimate for narrow-moat Cohen & Steers CNS to $53 per share from $64 to account for revised near- and long-term expectations about assets under management, revenue, and profitability since our last update. We view the shares as being fairly valued relative to our revised estimate.

Cohen & Steers closed out September 2023 with $75.2 billion in total AUM, down 6.5% sequentially and 5.1% year over year. Year-to-date net outflows (when adjusted for distributions) of $1.1 billion ($3.1 billion) were indicative of an annualized rate of organic AUM growth of negative 1.8% (negative 5.2%), far worse than the firm’s average annual organic AUM growth rate of positive 5.8% (positive 0.7%) during 2018-22.

We expect Cohen & Steers to generate organic AUM growth (when adjusted for distributions) of positive 0.3% (negative 4.4%) during 2023-27. This reflects our expectations for increased competition for listed real estate investment products from private real estate investment vehicles offered by both alternative asset managers and other traditional asset managers.

With managed assets declining at a low-single-digit rate annually on average during 2023-27 (owing to our expectations for another equity market correction before the end of our five-year forecast), and Cohen & Steers seeing a mid-single-digit decline in average AUM during that time, the company will likely see revenue decline at a 7.8% CAGR during 2023-27, down from negative 3.4% previously.

With operating margins continuing to be compressed by the effects of operating leverage as revenue growth remains in negative territory, we are expecting a step drop in Cohen & Steers’ adjusted operating margin going forward from 43.0% during 2022 to around 35% this year and bouncing around between 31% and 34% of revenue during 2024-27. This is down from our previous forecast for adjusted margins of 38%-41%.

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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