Analyst Note| Greggory Warren, CFA |
We've increased our fair value estimate for narrow-moat rated Cohen & Steers to $77 per share from $70 to account for improvements in the company's AUM, as well as our own near- to medium-term forecasts for the firm, since our last update. Cohen & Steers closed out May 2021 with a record $94.2 billion in assets under management, up 18% since the start of 2021 and up 48% on a year-over-year basis. We expect the company to close out the June quarter with more than $95 billion in managed assets, with net inflows of around $2.3 billion (slightly above the $2.2 billion quarterly run rate seen during the prior eight calendar quarters). Driven by continued demand for real estate funds, which we expect will continue to carry higher yields than most bond and money market funds, we continue to forecast mid-single-digit organic AUM growth on average annually for Cohen & Steers during 2021-25, which should translate into high-single to double-digit growth in managed assets overall (even with the effects of one equity market correction being built into our five-year forecast). Even with fee compression expected to be an ongoing issue for all of the U.S.-based active asset managers, we envision Cohen & Steers generating high-single to double-digit top-line growth on average, with the net result being an 11.0% compound annual growth rate for revenue during 2021-25. We also expect adjusted operating margins to improve slightly over last year's 38.7% during the next five years, hovering between 39% and 42% of revenue and averaging 40.6% during 2021-25, as the operating leverage that active asset managers like Cohen & Steers have traditionally enjoyed continues to be blunted somewhat by fee compression and higher operating expenses, with the industry spending more to enhance/maintain investment performance and secure access on retail-advised platforms longer term.