Ameriprise: Increasing Our Fair Value Estimate to $379 from $358, Shares Moderately Undervalued

Sector Director

Michael Wong

Revenue segments as reported by the company.

Management and financial advice fees

Distribution fees

Net investment income

Premiums, policy and contract charges

Other revenues

Gain on disposal of business

Banking and deposit interest expense

Revenue Segments

Gross Profit, Operating Income, and Net Income as a percentage of Revenue

Operating Margin

Profit Margin

Margins

An operating expense is an expense a business incurs through its normal business operations. Often abbreviated as OPEX.

Distribution expenses

Interest credited to fixed accounts

Benefits, claims, losses and settlement expenses

Amortization of deferred acquisition costs

Interest and debt expense

General and administrative expense

Remeasurement gains (losses) of future policy benefit reserves

Change in fair value of market risk benefits

Operating Expenses

Year over year growth in Revenue and Operating Expenses.

Revenue Y/Y

OpEx Y/Y

Growth

Shares outstanding refer to a company's stock currently held by all its shareholders, including share blocks held by institutional investors and restricted shares owned by the company's officers and insiders.

Outstanding Shares

Market Cap

Also known as Price/Sales Ratio. Calculated using Average market cap for the quarter / Annualized quarterly revenue.

Revenue Multiple

Ameriprise Financial has transformed itself into an investment management powerhouse, with about $1.3 trillion in total assets under management and advisement and around 10,000 financial advisors at the end of the second quarter of 2023. The firm continues to shift away from insurance and to place more emphasis on asset and wealth management operations. In 2019, the company closed the sale of its auto and home insurance business, and in 2020 it discontinued the sale of its proprietary fixed annuities. Columbia Threadneedle Investments, the firm's global asset-management business, turned Ameriprise into a contender in the global asset management industry. Recently about 80% of revenue comes from the company's wealth and asset management segments that should help the company generate operating margins consistently in the low- to mid-20s compared with midteens to low-20s historically.

We expect Ameriprise to weather potential economic turmoil relatively well. Many life insurance companies significantly "derisked" after the global financial crisis and became more conservative with their guaranteed benefit contracts. At the end of 2022, Ameriprise had several billion dollars of capital above regulatory requirements, about 98% of the fixed income securities on its balance sheet were investment-grade with about 75% rated AA or higher, and an estimated 100% of the deposits in its bank subsidiary were within FDIC limits.

In addition to returning most of its operating earnings to shareholders with dividends and share repurchases, the company is funding incremental growth investments. Ameriprise recently increased its presence in investment management with the acquisition of Bank of Montreal's EMEA asset management business in 2021, which increased assets under management by roughly 20%. Ameriprise is also using its capital to support the growth of its bank. Wealth management firms have been able to increase their profits by housing client cash as deposits in their banks and offering loan products, such as securities-based loans.

Business Strategy & Outlook

Wealth management moats are a result of switching costs with some contribution from intangible assets. A typical client stays with their financial advisor for 10 years or more. Wealth management is about trust, and clients are often attracted to the trusted brand of a financial institution and form attachments with their financial advisor. While there may be financial advisors that choose to go to another wealth management firm or start their own independent practice, many financial advisors choose to stay with their current firm, as there are operational difficulties with setting up or learning a new wealth management technology system and significant uncertainties regarding how many of their clients would move with them if they switch firms. Industry data from Cerulli estimates that the average client assets attrition rate is around 30% when an advisor switches.

We believe Ameriprise has built a moat surrounding its asset-management and wealth management businesses. Although the switching costs might not be explicitly large, the benefits of switching from one asset manager or wealth manager to another are at times so uncertain that many clients simply stay where they are. As a result, money that flows into asset and wealth management firms tends to stay there, creating significant asset stickiness.

In our view, Ameriprise has a Morningstar Economic Moat Rating of narrow around its asset-management and wealth management operations. With one of the largest agent channels in the industry, there is no question that Ameriprise has scale. Since its 2005 spinoff from American Express, Ameriprise has gradually moved up the value chain to provide customized services and financial planning solutions to the mass affluent and affluent client groups. Ameriprise’s focus on personal relationships helps the firm build on its switching-cost advantage. The company's retention rate for advisors is over 90%, and the industry retention rate for financial advisors of their retail clients is also around 90%. By positioning itself as a one-stop shop for baby boomers, offering advice in financial planning, fund investment, and insurance purchase, the firm makes it that much harder for boomers to switch to another provider. The size and scale of its operations, the strength of its brands, and the diversity of its AUM by asset class, distribution channel, and geographic reach also provide Ameriprise with a leg up over competitors.

In general, insurers do not benefit from favorable competitive positions. They are in the business of selling commodified insurance products to consumers who attribute very little value to brand. Industry competition is fierce, and there is a high degree of cost uncertainty. Because of the long duration attached to many of the products they sell, insurers do not necessarily know their cost of goods sold for a number of years, allowing them to underprice policies without knowing it. Firms have a large incentive to chase growth without regard for profitability, a cycle that repeats itself as competitors are forced to match artificially low prices or risk losing business.

From our perspective, insurance and annuities are very mature, and insurance products are mostly commodities that can be replicated by a competitor fairly easily. In fact, most companies lose money on underwriting, and they rely heavily on investment income to make up for underwriting losses. Since the typical life insurer is operationally leveraged to the state of the capital markets, over which the company has no direct control, we think it is difficult for most life insurance companies to generate consistent excess returns, a requirement for an economic moat.

Narrow

Economic Moat

Ameriprise Financial

Ameriprise Financial, Inc. operates as a holding company. The firm provides financial planning, asset management and insurance services to individuals, businesses and institutions. It operates through the following business segments: Advice & Wealth Management, Asset Management, Retirement & Protection Solutions, and Corporate & Other. The Advice & Wealth Management segment provides financial planning and advice, as well as full-service brokerage and banking services, primarily to retail clients through the company's financial advisors. The Asset Management segment provides investment advice and investment products to retail and institutional clients. It also provides products and services on a global scale through two complementary asset management businesses: Columbia Management and Threadneedle. The Columbia Management business primarily provides U.S. domestic products and services and Threadneedle primarily provides international investment products and services. Its international retail products are primarily provided through third-party financial institutions. The segments retail products include mutual funds and variable product funds underlying insurance and annuity separate accounts. The Retirement & Protection Solutions segment offers a variety of protection products to address the protection and risk management needs of the company's retail clients, including life, DI, and property-casualty insurance. The Corporate & Other segment consists of net investment income on corporate level assets, including excess capital held in the company's subsidiaries and other unallocated equity and other revenues from various investments as well as unallocated corporate expenses. The company was founded by John Tappan in 1894 and is headquartered in Minneapolis, MN.

Earnings data Q1 2024

Revenue

Cost of revenue

Gross profit

Operating expenses

SG&A

Other

Operating income

EBITDA

Net income

Earnings per share

Total assets

Current assets

Cash & equivalents

Receivables

Inventory

Non-current assets

Net PPE

Intangibles

Total liabilities

Current liabilities

Short term debt

Income tax payable

Non-current liabilities

Long-term debt

Total equity

Stockholders equity

Minority interest

Total liabilities & equity

Total debt

Net debt

Book value per share

Cash from operations

Funds from operations

Change in working capital

Cash from investing

Capital expenditure

Purchase/sale of investments

Purchase/sale of business

Other sources

Cash from financing

Change in stock

Change in debt

Cash dividends paid

Cash from other sources

Net change in cash

Free cash flow

Ameriprise (AMP) has an impressive earnings surprise history and currently possesses the right combination of the two key ingredients for a likely beat in its next quarterly report.

Why Ameriprise (AMP) is Poised to Beat Earnings Estimates Again

Ameriprise Financial generates large amounts of free cash flow. It is committed to returning most of that FCF to shareholders.

Ameriprise Financial Stock Benefits From An Annual 11% Total Yield

Here at Zacks, our focus is on the proven Zacks Rank system, which emphasizes earnings estimates and estimate revisions to find great stocks. Nevertheless, we are always paying attention to the latest value, growth, and momentum trends to underscore strong picks.

Should Value Investors Buy Ameriprise Financial Services (AMP) Stock?

Ameriprise (AMP) is well positioned to outperform the market, as it exhibits above-average growth in financials.

Is Ameriprise (AMP) a Solid Growth Stock? 3 Reasons to Think " Yes "

Ameriprise (AMP) has been upgraded to a Zacks Rank #2 (Buy), reflecting growing optimism about the company's earnings prospects. This might drive the stock higher in the near term.

Ameriprise (AMP) Moves to Buy: Rationale Behind the Upgrade

Like the majority of investors, you're most likely working on a retirement portfolio that will provide a large enough nest egg to give you a comfortable retirement. Make sure you know all about what financial planners call the accumulation and distribution phases of retirement planning.

Know These 3 Facts to Avoid Paying Half Your Retirement Income to the IRS - January 09, 2020

Federated Investors

Federated (FII) and Ameriprise (AMP) are good options with similar business trends, but deeper research into their financials will help decide which investment option is better.

Federated or Ameriprise: Which is a Better Investment Pick?

Ameriprise Financial: A Compelling Capital Return Story

Know These 3 Facts to Avoid Paying Half Your Retirement Income to the IRS - December 20, 2019

Essent Group

First American Financial

Hilltop Holdings

MGIC Investment

Investors seeking growth prospects in finance stocks can venture out to the market, at present, to make profitable investment decisions.

5 Large Cap Finance Stocks That Crushed the Market in 2019

Is Ameriprise Financial (AMP) a great pick from the value investor's perspective right now? Read on to know more.

Can Value Investors Pick Ameriprise Financial (AMP) Stock?

Ameriprise (AMP) reported earnings 30 days ago. What's next for the stock?

Why Is Ameriprise (AMP) Up 5.6% Since Last Earnings Report?

T. Rowe Price Group

Though T. Rowe Price (TROW) and Ameriprise (AMP) are solid picks with similar business trends, deeper research into their financials will help decide which investment option is better.

T. Rowe Price (TROW) or Ameriprise (AMP): Which is Better?

Ameriprise Financial, Inc. (AMP) CEO Jim Cracchiolo on Q3 2019 Results - Earnings Call Transcript

Ameriprise (AMP) witnesses higher revenues and lower expenses in the third quarter of 2019.

Ameriprise (AMP) Q3 Earnings Beat, Revenues Rise Marginally

Ameriprise (AMP) delivered earnings and revenue surprises of 6.80% and 12.02%, respectively, for the quarter ended September 2019. Do the numbers hold clues to what lies ahead for the stock?

Ameriprise Financial Services (AMP) Q3 Earnings and Revenues Surpass Estimates

Blackstone Group

Invesco

Raymond James

SEI Investments

Results of investment management stocks are likely to reflect modest asset inflows amid challenging operating environment.

Investment Managers' Earnings on Oct 23: IVZ, RJF, BX & More

While Ameriprise (AMP) is likely to have witnessed growth in assets in third-quarter 2019, thereby aiding its top line, higher costs might have hurt earnings.

Why is a Beat Less Likely for Ameriprise (AMP) in Q3 Earnings?

Why Ameriprise (AMP) Could Beat Earnings Estimates Again

Ameriprise's (AMP) Auto & Home unit divestiture will help lower operating risk and invest in less capital-intensive businesses.

Ameriprise Closes Divestiture of Auto & Home Unit for $1.04B

Driven by strong fundamentals and bright growth prospects, Ameriprise (AMP) seems to be an attractive investment option right now.

5 Reasons to Add Ameriprise (AMP) Stock to Your Portfolio

Allstate

Principal Financial Group

General Mills

Target

Investors seeking both growth and income in stocks can venture out to the market, at present, to make profitable investment decisions.

5 Top-Ranked S&P Stocks for Income and Growth Investors

Ameriprise qualifies as a Compounder, growing EPS from $4.02 in 2007 (prior peak) to $14.97 last year, a CAGR of 13% through the cycle, using virtually no leverage.

News for Ameriprise Financial Stock (AMP)