UBS has upgraded Cohen & Steers (NYSE: CNS) to Neutral from Sell and significantly increased the price target to $102.00 from $63.00.
The adjustment reflects an improved outlook for the company, with expectations for stronger fundamentals driven by an improving environment.
A UBS analyst noted that Cohen & Steers saw robust inflows in the third quarter, with $1.3 billion of positive inflows, which translates to an organic growth rate of 6.3%, the highest since March 2022.
Looking ahead, UBS projects organic growth rates of 2.7% and 2.5% for the years 2025 and 2026, respectively. This optimistic forecast is partly based on an improving outlook for Commercial Real Estate (CRE).
Cohen & Steers' overall fund performance has shown signs of improvement, with 95% of U.S. open-end fund assets under management (AUM) receiving a 4 or 5-star rating, which is a 7 percentage point increase year-over-year. These ratings indicate that the firm's funds are generally outperforming their peers.
Despite the positive indicators and cyclical recovery in the real estate sector acting as a tailwind, the analyst expressed caution. The current stock valuation reflects a significant amount of optimism, trading at 29 times the next twelve months' (NTM) earnings, which is nearly 9 turns above its long-term average. Moreover, it is trading at a more than 90% premium compared to its peer group, compared to a 44% historical premium.
In other recent news, Cohen & Steers has reported a minor decrease in Q2 2024 earnings per share and revenue, recording $0.68 per share and $122 million respectively. This was attributed to underperformance in equity-oriented asset classes and a slight dip in assets under management.
Evercore ISI continues to maintain an Outperform rating on the company due to a strong performance in assets under management (AUM), which rose 4% month-over-month to $91.8 billion. The firm also declared a quarterly cash dividend of $0.59 per share.
Cohen & Steers announced a series of leadership changes, appointing Raja Dakkuri as CFO and Dan Noonan as Head of Wealth Distribution. Additionally, Lisa Dolly, former CEO of Pershing LLC, joined the Board of Directors, a move anticipated to enhance the Board's depth of knowledge and expertise.
In terms of growth initiatives, the firm is planning to launch active ETFs and has initiated the Future of Energy Fund. Lastly, it's worth noting that several Wall Street firms, including BNY Mellon (NYSE:BK), agreed to pay a collective sum exceeding $470 million in settlements with U.S. regulators due to violations of recordkeeping rules.
InvestingPro Insights
Recent data from InvestingPro reinforces UBS's upgraded outlook on Cohen & Steers (NYSE:CNS). The company has shown a significant return over the last week and is currently trading near its 52-week high, aligning with the analyst's more optimistic stance. These metrics suggest that the market is responding positively to the improved fundamentals and inflow trends highlighted in the UBS report.
An InvestingPro Tip notes that CNS has maintained dividend payments for 21 consecutive years, which may appeal to income-focused investors in the real estate sector. Additionally, the company's liquid assets exceeding short-term obligations indicate a strong financial position, potentially supporting the projected organic growth rates mentioned by UBS.
It's worth noting that InvestingPro has 13 additional tips available for CNS, offering investors a more comprehensive analysis of the company's financial health and market position.
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