Lazard May Have A Bumpy Ride, But Well Managed

| About: Lazard Ltd. (LAZ)

Summary

Large and steady asset management business.

Smaller number of competitors in the financial advisory space.

Headwinds around currency many be lessening.

Lazard (NYSE:LAZ) has built a very attractive business nearly evenly split between financial advisory (54%) and asset management (46%) based on 2015 net revenue. They are well diversified, servicing a wide variety of clients in many sectors and geographies.

Current Status

Lazard had a record 2015 with operating revenues of $2.38 billion up from $2.34 billion in 2014 and earnings per share of $3.60 up from $3.20 in 2014.

Lazard is heavily involved in corporate M&A which may see a slow down in 2016. Although with the Fed on hold, for now, companies may rush to get in while financing costs are low. Lazard is also well respected for its expertise in corporate restructuring which could see an increase in activity with sustained low oil prices and a weakening global economy.

The asset management business has been steady with a slight decrease in net revenue from 2014 to 2015. Some of this reduction can be attributable to the decline in the emerging markets equity funds, which drove a 5% decline in assets under management for the firm.

Competition

Investment banking is a very competitive business with many strong players. Lazard has a good reputation and a great network of professionals. Some of its competition may be weakened with PJT Partners (NYSE:PJT) having issues at the partner level and Credit Suisse (NYSE:CS) looking to de-risk the bank. This may provide an opportunity for Lazard to land additional business and talent from those firms.

Headwinds

Lazard is a global business with approximately 56% of its net revenue from the U.S. and 44% from other parts of the globe in 2015. USD strengthening would have an adverse effect on earnings. M&A activity could slow in 2016 which would adversely affect Lazard's earnings. If the U.S. markets continue to outperform international markets, other asset managers more focused on the U.S. would have comparatively better performance.

Current Valuation

Lazard currently trades at a forward P/E of 10.4 (P/E of 5.3), a dividend yield of 3.6% (they also had a special dividend of $1.2 up from $1 in 2014), and is 32% off of its 52-week high.

Trade

I think Lazard offers good value for the investors at current prices. The business has some headwinds around a slowing M&A sector and continued dollar strength. With a 3.6% dividend yield and 10.4 P/E, I believe there's a lot of upside potential for the investor who can take some bumpy earnings along the way.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.