We are maintaining our Neutral recommendation on
Ameriprise Financial Inc.
) as we believe that the risk-reward profile of the company is
currently balanced. Our decision is based on the company's
consistent capital deployment activities and strong fundamentals.
However, we remain wary of the persistent low interest rate
environment and rising operating expenses.
Ameriprise is an asset for yield-seeking investors. In April 2012,
the company increased its quarterly cash dividend by 25% to 35
cents per share and has maintained that level since then. This was
the sixth dividend rise for the company since 2005.
Also, the company continues to repurchase shares. Overall,
during the second quarter of 2012, Ameriprise returned $492 million
to its shareholders in the form of share repurchases and dividends.
Further, Ameriprise operates a well-diversified portfolio compared
with its industry peers. The company takes care of molding its
product and service offering capacity to keep pace with the
ever-changing market needs and to channelize its revenue
Therefore, the company's net investment income, Auto & Home
premiums and growth in policy counts continues to improve. Also,
product introduction remained impressive during the last few years.
Going forward, new products with the existing portfolio will assist
in revenue growth.
Ameriprise has grown inorganically and restructured its portfolio
from time to time through acquisitions, sales and spin-offs to
serve the changing market demands. In May 2010, the company
acquired the long-term asset management business of Columbia
Bank of America Corporation
), which uplifted the performance of its retail mutual fund and
institutional management businesses. Additionally in November 2011,
Ameriprise completed the divestiture of Securities America
We believe such efforts will help Ameriprise to enhance its
profitability in the long run. Yet we remain concerned about the
company's escalating operating expenses.
Higher distribution expenses, general and administrative expenses
as well as elevated interest and debt expense have resulted in the
higher-than-expected expenses in 2011. Further, the conversion of
its bank subsidiary to a national trust bank this year, will add up
to a total of $20 million in operating expenses in the subsequent
quarters. Though the advertising campaign and technology upgrades
will be beneficial for the company in the long run, swelling
expenses may thwart its profitability.
Although Ameriprise is reducing its deferred and acquisition costs
(DAC) through re-engineering initiatives, its fixed interest costs
and claims continue to rise. Over the last several quarters,
interest credited to fixed accounts is increasing, reflecting
higher annuity fixed account balances and higher average crediting
Ameriprise is working on increasing advisor productivity by
tightening productivity standards and improving technology
available to advisors, but we believe more efforts should be given
to offset continued pressure on fee and asset growth, higher DAC,
amortization and hedging.
AMERIPRISE FINL (AMP): Free Stock Analysis
BANK OF AMER CP (BAC): Free Stock Analysis
To read this article on Zacks.com click here.
Ameriprise operates in a competitive financial services industry
where brand integrity and market sentiments play an important role
in sales, net inflows and managed assets leverage. The current
sluggish economic recovery factors, low interest rate environment,
and the European debt crisis can lead to sudden outflows, reducing
demand and management fee revenues and impeding benefits from
economies of scale.
Ameriprise is expected to announce its third-quarter results on
October 24. The Zacks Consensus Estimate for the quarter is $1.38
on revenue expectation of $2.6 billion. The company's second
quarter 2012 earnings significantly lagged the Zacks Consensus
Ameriprise shares currently retain a Zacks #3 Rank, which
translates into a short-term Hold rating.