M IdeaAsset Managers | North America4Q Preview: Improving EPS OutlookMorgan Stanley & Co. LLCMichael J. Cyprys, CFA, CPAEquity Analyst Michael.Cyprys@morganstanley.com +1 212 761-7619 Annalei E DavisResearch Associate Annalei.Davis@morganstanley.com +1 212 761-1736 Brokers, Asset Managers & ExchangesNorth AmericaIndustry ViewIn-Line Exhibit 1: Price Target Changes TickerRating Price TargetOld TargetChg %Upside %BENUW24$ 22$ 9%-12%IVZEW17$ 15$ 13%2%JHGEW28$ 27$ 4%-2%BSIGEW22$ 20$ 10%13%TROWEW106$ 101$ 5%0%VCTRUW28$ 26$ 8%-18%VRTSUW199$ 170$ 17%-13%WTEW7.25$ 7.25$ 0%0%Avg8%-4%Median8%-2% Source: FactSet, Morgan Stanley Research estimates. Note: we separately updated BLK estimates after the reported 4Q23 results; see our BLK notes. Check out our other recent reports here: BlackRock Inc.: Extending Runway for Growth (18 Jan 2024) Asset Managers: Dec '23 AUM Flash: TROW (11 Jan 2024) Asset Managers: Dec '23 AUM Flash: BEN, IVZ, VRTS, VCTR, WT (11 Jan 2024) Brokers, Asset Mgrs & Exchanges: 2024 Outlook: Navigating Mixed Signals (15 Dec 2023) Asset & Wealth Management: The AI Tipping Point (4 Oct 2023) Expect better 4Q earnings given market rally into year-end boosting fund NAVs that drives our 5% upward EPS revision. Higher AUM levels support improved 2024-25 outlook with 12%/8% upward EPS revision. We also see scope for a better flow outlook in '24 as we anticipate gradual risk re-engagement. Key Takeaways:• Better market performance into year-end relative to the soft Oct start supports upward revisions though not enough to drive seq. EPS growth. Expect flows remain pressured by weak risk appetite and seasonally softer MF flows that likely see ~3% outflows (vs ~1% outflows in 3Q23). • Looking to 2024, we anticipate risk re-engagement given views of our economists for falling inflation, rate cuts from June and a soft landing. In such a backdrop, we expect large piles of cash on the sidelines to rotate into fixed income and would also expect improved equity flows over time. • On 4Q calls, we'll be listening for mgmt commentary around; 1) client risk re-engagement trends, particularly Jan YTD and organic growth outlook, 2) expense outlook and growth initiatives, 3) capital mgmt priorities including scope for strategic actions/M&A to drive improved growth prospects. • The group rallied 21% over the past 3-months (vs. S&P up 11%), but declined -3% YTD (vs. S&P -0.6% YTD) vs. our broader coverage -4% YTD. Valuations at 9.3x EV/EBITDA are roughly in line with 9.4x EV/EBITDA that the group historically traded on avg, and well above prior troughs at ~6x. • We raise 4Q estimates by +5% on an average basis, and we're -0.4% below cons; We're most below the street in 4Q for BSIG and TROW, by -6.5% and -4.8% and most above for VCTR and BEN, by +4.5% and +2.3% • Our 2024-25 EPS estimates rise +11.7%/+7.6% on average basis on higher AUM levels gi...
