Affluent Assets Boost Ameriprise

07/11/2014 8:00 am EST

Focus: STOCKS

Richard Moroney

Editor, Dow Theory Forecasts

An overall score of 97 (out of 100) on our quantitative ranking system, this featured recommendation is the best-looking company in the asset-manager industry—a highly attractive sector, given US demographic trends and the resilient stock market, explains Richard Moroney, editor Dow Theory Forecasts.

With more than 9,700 advisers, Ameriprise (AMP) targets households with more than $100,000 of investable assets, a population segment it calls the mass affluent.

Assets under management and administration swelled 11% to $782.8 billion over the past year, benefiting from the stock market’s appreciation and strong fund inflows.

Ameriprise has a solid track record, ranking in the top 20% of our research universe for five-year earnings, sales, and dividend growth. Near-term trends are also robust, with sales rising 11% and operating profits up 31% in the 12 months ended March.

Ameriprise generated $2.26 billion in operating cash flow over the last four quarters, compared to $862 million in the year-ago period. It also posted 12-month free cash flow of $1.74 billion, up fourfold.

S&P 1500 Index asset managers are expected to average 10% growth in per-share earnings for the current fiscal year, exceeding the broader financial sector’s 6% growth target.

Ameriprise’s outlook appears particularly bright, with per-share profits projected to surge 16% in 2014. Despite the strong profit outlook, Ameriprise shares look cheap. At 16 times trailing earnings, the stock trades 12% below its industry median. Based on its forward P/E ratio of 14, the stock offers a 15% discount to its peers.

Stock buybacks have shaved 6% from the share count in the past year and 25% since the end of March 2010. Ameriprise’s timing has proved fortuitous, as the company paid an average of $94 per share over the past year and $61 since March 2010.

In April, management declared a fresh $2.5 billion stock buyback for the next two years, enough to repurchase 11% of its shares at current prices. In April, Ameriprise raised its quarterly dividend 12%, its sixth hike in the last four years. The stock yields 2.0%. Ameriprise is a Long-Term Buy.

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