Cohen & Steers: Fair Value Estimate Lowered to $53 due to Market Headwinds and Increased Competition
We have lowered our fair value estimate for narrow-moat Cohen & Steers CNS to $53 per share from $64 to account for revised near- and long-term expectations about assets under management, revenue, and profitability since our last update. We view the shares as being fairly valued relative to our revised estimate.
Cohen & Steers closed out September 2023 with $75.2 billion in total AUM, down 6.5% sequentially and 5.1% year over year. Year-to-date net outflows (when adjusted for distributions) of $1.1 billion ($3.1 billion) were indicative of an annualized rate of organic AUM growth of negative 1.8% (negative 5.2%), far worse than the firm’s average annual organic AUM growth rate of positive 5.8% (positive 0.7%) during 2018-22.
We expect Cohen & Steers to generate organic AUM growth (when adjusted for distributions) of positive 0.3% (negative 4.4%) during 2023-27. This reflects our expectations for increased competition for listed real estate investment products from private real estate investment vehicles offered by both alternative asset managers and other traditional asset managers.
With managed assets declining at a low-single-digit rate annually on average during 2023-27 (owing to our expectations for another equity market correction before the end of our five-year forecast), and Cohen & Steers seeing a mid-single-digit decline in average AUM during that time, the company will likely see revenue decline at a 7.8% CAGR during 2023-27, down from negative 3.4% previously.
With operating margins continuing to be compressed by the effects of operating leverage as revenue growth remains in negative territory, we are expecting a step drop in Cohen & Steers’ adjusted operating margin going forward from 43.0% during 2022 to around 35% this year and bouncing around between 31% and 34% of revenue during 2024-27. This is down from our previous forecast for adjusted margins of 38%-41%.
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