Goldman's Symphony of Ratings: Asset Management Stocks in the Spotlight for 2024

Goldman Sachs analyst Alexander Blostein has conducted a comprehensive revision of his ratings for various asset management companies, based on a fresh perspective aimed at the American Capital Markets as we approach 2024. This significant reshuffling comes after a robust end-of-year rally in 2023 and revised expectations for the interest rates landscape.

Positive Sector Performance and Future Outlook

The commendable 27% average uptick in Capital Markets stocks during 2023, bolstered particularly by the Alternative Asset Managers, who saw their value soar over 60%, hints at an upbeat investor sentiment. Blostein predicts an uptick in capital velocity and transactional activity in 2024. Although this represents a recovery from 2023, it may still fall short of past averages due to elevated capital costs.

Strategic Downgrades Amidst Changing Conditions

As a part of the rating overhaul, Blostein has shifted his stance on Blackstone Inc (BX), Charles Schwab Corp (SCHW), and Raymond James Financial Inc (RJF) from 'Buy' to 'Neutral'. The reasoning for Blackstone's downgrade centers on a forecasted deceleration in management fee growth and threats to the consensus earnings per share (EPS) estimates. Charles Schwab's outlook is dented by the potential for lower interest rates that introduce new risks into their 2024 EPS, delaying any upside scenarios further into the future. Similarly, for Raymond James Financial, a rate-sensitive asset base implies higher EPS risks with limited offsets.

Blostein also downgraded CME Group Inc (CME) from 'Neutral' to 'Sell', citing anticipated normalization in rate volumes, competitive pressures in multiple sectors, and reduced interest income, all of which could curtail EPS growth prospects.

Upgrades Riding on Strong Fundamentals

On a more positive note, State Street Corporation (STT) and Ameriprise Financial Inc (AMP) received an upgrade from 'Neutral' to 'Buy'. These upgrades reflect State Street's advantage from a liability-sensitive balance sheet, combined with promising fee and expense dynamics, and a robust share buyback strategy. Ameriprise's step up came thanks to a resilient cash revenue forecast, disciplined expense management, and a vigorous share repurchase scheme.

Dispersion in Share Price Performance and Earnings Growth

Blostein anticipates a broader dispersion in share price performances across the sector in 2024. The projection for asset management firms involves an upbeat trajectory for EPS growth in 2024. This is expected to be led by Alternative Managers and Retail Brokers, who may see year-over-year EPS growth exceeding 20% and 14% respectively.

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