You Can Profit From Ameriprise's Advice

12/29/2014


  Recent Price
$137
  Dividend
$2.32
  Yield
1.7%
  P/E Ratio
17
  Shares (millions)
194
  52-Week Price Range
$137.15 - $100.94

With waves of baby boomers rolling into retirement, demand for Ameriprise Financial's ($137; AMP) roster of products — mutual funds, annuities, insurance, and investment advice — continues to rise.

Revenue climbed 11% and cash from operations 30% in the 12 months ended September. Rising productivity from financial advisers has contributed to higher profit margins, and management sees room for more improvement. Return on equity has marched higher in seven of the last eight quarters, reaching a record 18.0% for the 12 months ended September.

Such strong operating momentum seems sustainable; the consensus projects per-share-profit growth of 15% over the next 12 months, well above the median of 9% for S&P 1500 Index asset managers. With a 1.7% yield, reasonable valuation, and strong Quadrix® scores, Ameriprise is a Focus List Buy and a Long-Term Buy.

Business breakdown

The company operates four main businesses: advice & wealth management (money managed by company advisers), asset management (mutual funds and similar products), annuities, and protection. Annuities and asset management are the most profitable units. The asset-management business offers about 200 mutual funds and insurance trust funds, while the protection unit provides life, disability and property-casualty insurance.

Recent growth has been driven by wealth management. This business targets a population group Ameriprise calls the mass affluent, households with investable assets of $100,000 or more.

Ameriprise employs about 9,600 advisers, down from 9,700 a year earlier. Despite the lower headcount, assets under management and administration have risen 8% to more than $796 billion. The market's appreciation and net inflows for the wealth business have overcome net outflows from asset management.

The company says more than two-thirds of affluent consumers — those with at least $1 million in investable assets — lack a formal financial plan. Ameriprise is starting to gain traction with this group.

With a larger base of assets under management, Ameriprise earned 12% higher fees for management and financial advice in the first nine months of this year. However, net investment income slipped 7%, primarily due to low interest rates. Partnerships with Costco Wholesale ($144; COST) and Progressive ($27; PGR) for auto and home insurance helped push premium revenues 8% higher.

U.S. regulators plan to tighten their oversight of large asset managers that could pose a threat to markets during a major crisis. Most of the focus has centered on BlackRock ($364; BLK) and Fidelity Investments, though the much smaller Ameriprise could eventually fall under scrutiny.

Conclusion

Despite superior growth prospects, Ameriprise's trailing P/E of 17 is 13% below its peer-group average of 19. If Ameriprise meets consensus profit targets and its P/E ratio rises to 18, the shares will rally 27% in the coming year.

An annual report for Ameriprise Financial Inc. is available at 1099 Ameriprise Financial Center, Minneapolis, MN 55474; (612) 671-3131; www.ameriprise.com.

AMERIPRISE FINANCIAL
Quarter
Per-Share Earnings*
($)
Sales
Change
Quarterly
Price Range
($)
P/E Ratio
Range
Sep '14
2.10
vs.
1.91
11%
128.51
-
105.41
16 - 13
Jun '14
2.08
vs.
1.69
12%
127.00
-
107.11
17 - 14
Mar '14
2.04
vs.
1.59
11%
115.41
-
100.94
16 - 14
Dec '13
1.87
vs.
1.72
10%
116.82
-
100.22
17 - 15
           
Year
(Dec.)
Sales
 ($Bil.)
Per-Share
Earnings*
($)
Per-Share
Dividend
($)
52-Week
Price Range
($)
P/E Ratio
Range
2013
11.23
7.05
2.01
115.36
-
63.59
16 - 9
2012
0.26
5.59
1.43
63.75
-
45.17
11 - 8
2011
10.24
5.00
0.87
65.12
-
36.00
13 - 7
2010
10.02
4.53
0.71
58.17
-
34.68
13 - 8
 
Quadrix Scores †
Overall
Momen-
tum
Value
Quality
Financial
Strength
Earnings
Estimates
Performance
93
74
67
89
59
78
77

   * Earnings exclude special items.
   † Quadrix® scores are percentile ranks, with 100 the best.


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