Wednesday, September 28, 2011

Lazard Stock Trades Like An IB Without The Trading Risk

Monday, Lazard was available at an all-time low. It has since bounced with the market, but remains attractive. This premier investment bank provides the investor exposure to the capital markets without the inherent risk of the typical investment bank's proprietary  trading desk. Financial advise isn't going away so LAZ, with its geographic and product diversification, will continue to perform.

Lazard operates closer to the old fashioned investment bank than the model chosen by Goldman Sachs and Morgan Stanley. LAZ is the world's sixth largest advisor and, of the top ten, the third fastest growing. Their customer base appreciates not only their financial acumen, but their unconflicted advise as they don't trade for their own account. Additionally, they have the world's largest restructuring business which provides a revenue cushion when M&A is lethargic. The banking and restructuring side of the business amounts to slightly more than half of the company. Asset management for clients handles $160 billion under management. Both sides of the business are producing revenue surpassing the peak year of 2008. Their business is truly global so you get continental diversification as well as currency.

Without the risks and leverage associated with trading, Lazard has a solid, low risk balance sheet. Long term debt has decreased from $1.2B to $.7B since 2008 and there are no maturities until 2015. They have no principal trading or lending book so assets are not suspect. 

Employees own 30 percent of the company and LAZ currently yields 2.7 percent. The biggest knock against the company has been the high level of compensation to their professionals. Management has been addressing the issue and is committed to bringing compensation expense as a percentage of revenue down. They succeeded in 2010 and so far in 2011. 

Without the home runs available from trading, LAZ will only see earnings grow through market share gains, but I'm more comfortable with that level of risk. I seem to never tire of catching falling knives so I bought some on Monday and so far I'm not bleeding. So far.......


johnythomas said...

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Bloggertesttesttest said...

Hi there! Your logo is out of date, is there anyway you could update this one to Lazard's new logo? You can find it here:

Much appreciated!

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