AllianceBernstein: Still Worth Buying

AllianceBernstein Holding L.P. (AB) is a limited partnership company. It provides research, diversified investment management and related services globally to a range of clients. Its principal services include Institutional Investment Services, Retail Services, Private Client Services and Institutional Research Services. Clients include institutions such as corporate and public employee pensions, endowments and governments. AB also serves various retail clients; private clients, trusts, estates, partnerships, and other entities. It also provides distribution, shareholder servicing, etc. to its sponsored mutual funds.

Both the profits and unit price of AB went way down last fall and winter along with the general market. Fundamentals dictated a drop but the extent appears to have grossly overshot to the downside. AllianceBernstein units peaked at $94.90 in early 2007 and fell as low as $10.10 at the nadir last March.

Earnings troughed in the March quarter but have recovered steadily since then. Q1 came in at $0.07, Q2 at $0.41 and the recently reported Q3 picked up to $0.67. Full year 2009 estimates have risen over the past month from $1.38 to $1.70, while analysts are now at $2.05 for 2010 versus a month-ago expectation of just $1.71.

The units have surged along with the earnings upgrades. AB has climbed back to $26.02 after going ex-dividend for a $0.67 quarterly distribution Thursday.

Here are the per unit figures for AB as reported by Value Line:

Year	Sales	C/F	EPS	Distrib.	Dist/C-F	Avg. P/E	Range
2000	10.21	4.10	3.12	3.18	89%	14.4x	29.30-56.70
2001	12.03	4.96	2.77	2.84	89%	17.8x	37.40-59.30
2002	10.96	3.72	2.19	2.30	104%	16.9x	23.20-50.80
2003	10.87	4.04	2.12	1.97	92%	15.6x	25.80-39.30
2004	11.92	4.17	2.43	1.19	54%	14.9x	31.50-42.30
2005	12.72	4.51	3.02	2.80	92%	15.7x	40.20-58.50
2006	15.25	5.24	3.82	3.56	93%	17.7x	55.40-82.90
2007	17.38	5.79	4.33	4.75	108%	19.8x	71.30-94.90
2008	13.33	4.10	2.79	3.45	122%	17.6x	11.50-78.00

As a master limited partnership, AllianceBernstein must pay out the bulk of its profits to its unit holders as cash distributions. Over the past decade, AB has paid out $27.48 per unit (including 2009’s declared $1.44) for an average annual distribution of $2.745 /unit.

That period from 2000 through 2009 includes the NASDAQ bust of 2000, the extreme bear market of 2002 as well as the 2008-2009 melt down. It includes the boom years of 2003 and 2005-2007. As such, I feel it represents a pretty good indication of what investors can expect over a full cycle or two of ‘normalized’ market action.

At the current price of $26.02 that average annual $2.74 distribution would equal about a 9.5% yield. That’s quite attractive in today’s low interest rate world.

The chart above shows that the average annual P/E for AB was 16.7x over the 9-year period 2000-2008. A return to even a 16 multiple on year-ahead estimates of $2.05 would bring AB units back to $32.80 or up 26% from the current quote. Add in the nice quarterly distributions and you have the recipe for a very nice total return play.

Is $32.80 a rational target? I’d say it’s probably too conservative based on the past trading history for AB. Take a peek at the high end pricing from the ’52-week range’ box on the table above to see where AB has typical gone during boom times.

The balance sheet is in good shape with total debt about half of net cash on hand and no maturities coming due anytime soon. Long-term debt equals less than 10% of capital.

Summary: AllianceBernstein units are good-yielding and moderately priced. Total annual returns could easily exceed 30% based on today’s estimates and could easily be better than that if markets continue to improve over time.

Disclosure: Author is long AB units and short AB puts.

Comments

[ozcutty:]

i agree Paul, compared with other Asset Managers, they are cheap as chips, should be around the $40 mark by now. If the mrket keeps creeping up, there profits will go up very fast because their costs are fairly fixed. They also have a nice research business that has been bringing in steady income even through this crisis.
disclosure: long AB

Nov 05 04:35 PM

[Sreeni Meka:]

Good analysis Paul. I am long time holder of this equity. Here is an additional way I analyze this stock:

As end of September AB has $500 Billion assets under management. Historical (adding good times and bad times) the average price per $100B assets the stock price is at $8. So I can say the fair price is $40 and assets still growing with market. That makes the current price is at very good position. I can say high margin of safety, and business model is great although there were cultural issues during merger. Now the storm and calm period is over. Business should get better. Here is historical AUM and equity price ratios. Its a sure pick for value equity holders.


Month -- AUM ($B) -- Month End Stock price -- Price/$100B
12/31/2004 538 $42.00 $7.81
04/30/2005 522 $44.94 $8.61
06/30/2005 516 $46.74 $9.06
08/31/2005 543 $44.22 $8.14
11/30/2005 568 $55.00 $9.68
03/31/2006 617 $66.25 $10.74
06/30/2006 625 $61.14 $9.78
09/30/2006 659 $68.99 $10.47
11/30/2006 731 $76.49 $10.46
03/31/2007 742 $88.50 $11.93
06/30/2007 793 $87.09 $10.98
09/30/2007 813 $88.07 $10.83
11/30/2007 806 $81.95 $10.17
01/31/2008 751 $66.39 $8.84
04/30/2008 766 $62.02 $8.10
06/30/2008 717 $54.68 $7.63
09/30/2008 590 $37.01 $6.27
11/30/2008 452 $17.61 $3.90
01/31/2009 429 $17.08 $3.98
03/31/2009 411 $14.72 $3.58
05/31/2009 458 $19.08 $4.17
07/31/2009 467 $20.64 $4.42
08/31/2009 482 $27.04 $5.61
09/30/2009 498 $27.28 $5.48

Average: $7.94
Justified Price $39.56

Nov 05 06:02 PM

[Paul Price:]

November 12, 2009 (FinancialWire) (Investrend Research Syndicate) --ValuEngine, Inc. has upgraded AllianceBernstein Holding Lp (NYSE: AB) to a "5" rating, the service's highest.

The ValuEngine Rating is an overall assessment of a stock's attractiveness. It combines the following five factors: ValuEngine's proprietary valuation, risk-return tradeoff, momentum, market capitalization and ValuEngine's proprietary forecasted one-month return. Approximately 80 to 85 companies achieve this highest ValuEngine rating out of VE's total coverage of over 5,000 publicly traded companies.

ValuEngine is a subscription-based business intelligence, market and equity analysis firm that provides exclusive, customized research and analysis solutions directly to companies, investors, investment banks and broker-dealers.

Nov 18 08:32 AM