On Monday, TD Cowen adjusted its stance on Virtus Investment Partners (NASDAQ:NYSE:VRTS), moving the investment firm's rating from Buy to Hold. The revision also came with a decrease in the stock price target, now set at $264, down from the previous target of $285.
The decision was influenced by several factors, including a lowered base earnings per share (EPS) target multiple and a decrease in the value of excess capital, attributed to higher acquisition multiples in the asset management sector.
The analyst from TD Cowen highlighted a series of reasons behind the downgrade. One of the concerns was the expectation of non-steady net new asset (NNA) organic growth due to varying trends across different asset classes and distribution channels. The lead indicators for the firm are also mixed, which could hinder any potential improvement in fee rates.
Another point of consideration for the analyst was the anticipation of a more cautious approach to free cash flow (FCF) deployment in terms of stock repurchases and acquisitions, particularly given the broader economic and industry context.
Moreover, the analyst noted a reduced contribution from excess capital and deal-related activities, which is a consequence of rising take-out multiples. This is further complicated by Virtus Investment Partners' relatively smaller scale in the alternative investment space.
The revised earnings projections for 2024 and 2025 were also mentioned, with the analyst's estimates falling 2-3% below the limited consensus, indicating a moderate risk of negative revisions. This stands in contrast to generally more positive expectations seen in other areas of the sector.
Lastly, the analyst's outlook suggested that better investment opportunities with more favorable flow inflection or sustainability, as well as FCF deployment opportunities, might be found elsewhere in the sector.
InvestingPro Insights
As Virtus Investment Partners (NASDAQ:VRTS) navigates the challenges outlined by TD Cowen, real-time data from InvestingPro offers a more nuanced perspective on the company's financial health and market position.
With a market capitalization of approximately $1.69 billion and a price-to-earnings (P/E) ratio standing at 13.16, VRTS presents a compelling case for investors looking for value opportunities. The company's P/E ratio is particularly noteworthy when aligned with its near-term earnings growth, suggesting a potentially undervalued stock.
InvestingPro Tips highlight that VRTS has not only raised its dividend for 6 consecutive years but has also maintained those payments for 11 consecutive years, reflecting a strong commitment to shareholder returns.
Moreover, the company's liquid assets exceed its short-term obligations, which may reassure investors of its financial stability. With analysts predicting profitability for the current year and a profitable track record over the last twelve months, VRTS could be an attractive option for those seeking steady performance.
For investors interested in further analysis and additional InvestingPro Tips for Virtus Investment Partners, they can explore more at https://www.investing.com/pro/VRTS. There are 7 more InvestingPro Tips available, which could provide deeper insights into the company's long-term potential. To access these insights, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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