We have reiterated our 'Neutral' recommendation on
Ameriprise Financial Inc.
), based on its consistent capital deployment activities and
better-than-expected first quarter results. However, increasing
expenses, prevailing low interest rate environment and the ongoing
outflows related to the integration of Columbia Management will
keep the company's financials under pressure.
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Ameriprise has been growing organically as well as through
acquisitions. In May 2010, the company acquired the long-term asset
management business of Columbia Management from
Bank of America Corporation
). This acquisition has significantly pushed up the performance of
Ameriprise's retail mutual fund and institutional management
businesses. In 2012, the company expects net synergies of about
$145 million from the acquisition. We believe that the company will
continue to restructure its business operations with an aim to
remain profitable by focusing on its core business.
Moreover, Ameriprise is an asset for yield-seeking investors. In
April, the company increased its quarterly cash dividend by 25% to
$0.35 per share. This follows a 22% dividend hike in the fourth
quarter of 2011. This is the sixth dividend rise for the company
since 2005. Also, the company continues to buyback shares. Overall,
during the first quarter, it returned $364 million to its
shareholders in the form of share repurchases and dividends. We
expect management to continue enhancing shareholders' value in the
future as well.
Further, Ameriprise operates a well diversified portfolio compared
with its peers. The company designs its products and services
keeping in mind the investors' needs and to further enhance revenue
growth. Hence, going forward, maneuvering new products with the
existing portfolio will facilitate the top-line growth of the
On the flip side, Ameriprise operates in a highly competitive
industry where brand name and market sentiments also play an
important part in deciding the growth in sales, net inflows and
managed assets. Given the current modest economic recovery and the
European debt crisis, outflows can occur anytime, reducing demand
and management fee revenues plus impeding benefits from economies
Additionally, continuously rising expenses is a major cause of
concern for Ameriprise. In 2011, total expenses amounted to $8.8
billion compared with $7.9 billion in 2010 and $6.5 billion in
2009. Higher distribution expenses, general and administrative
expenses as well as increased interest and debt expense resulted in
elevated expenses during the year. Though the advertising campaign
and technology upgrades will be beneficial for Ameriprise in the
long run, rising expenses may prove harmful for its profitability.
Ameriprise currently retains a Zacks #3 Rank, which translates into
a short-term 'Hold' rating.