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Cohen & Steers: Lowering Fair Value Estimate by 5% on Weaker Performance and Flows in September

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We’ve lowered our fair value estimate for narrow-moat-rated Cohen & Steers CNS to $64 per share from $67 to account for revised near-term expectations about assets under management, revenue, and profitability since our last update. We view the shares as being slightly undervalued.

Cohen & Steers closed out September 2023 with $75.2 billion in total AUM, down 6.5% since the end of the June quarter, as well as being down 5.1% year over year and 6.5% since the start of the year. Net outflows (exclusive of distributions) of $1.1 billion since the start of the year were indicative of organic AUM growth of negative 1.8%, well off the positive 5.8% CAGR for organic AUM growth that the firm generated during 2018-22. While flows were positive during June, July, and August they returned to negative territory in September as both retail and institutional investors pulled money out of the company’s funds.

With average AUM looking to be down 12% year over year during the third quarter (following weaker AUM and flow results), we expect the firm to struggle to generate positive top-line growth this year, with our expectations for full-year revenue growth moving from a 12%-15% decline to a 14%-17% decline for the third quarter. Our five-year forecast (which includes an equity market correction nearer the end of our projection period) has revenue declining at a low- to mid-single-digit rate on average annually during 2023-27.

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—something that we expect will continue to play out over the remainder of the year. Even so, we are projecting profitability to recover over the next five years, with adjusted GAAP operating margins in a 38%-41% range, compared with 41.6% 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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