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Will Higher Costs Weigh on Affiliated Managers Q3 Earnings?

Affiliated Managers Group Inc.AMG is scheduled to release third-quarter 2015 results on Nov 9, before the market opens.

In the preceding quarter, Affiliated Managers' earnings surpassed the Zacks Consensus Estimate. Results benefited from modest improvement in revenues, partly offset by higher operating expenses.

Affiliated Managers recorded an earnings beat in three of the trailing four quarters with an average positive surprise of 1.31%.

Will Affiliated Managers be able to keep its earnings streak alive this time around? Or it will disappoint? Let's see how things have shaped up for this announcement.

Factors Influencing Q3 Results

Affiliated Managers holds an almost unbeaten track record of buying equity interests in asset management companies with strong performance-oriented products, which continue to improve the top line. The upcoming results will likely witness enhanced revenue generation, driven by excellent long-term performance of its affiliates.

Further, management estimates the ratio of earnings before interest, taxes, depreciation and amortization ("EBITDA") contribution at end-of-period AUM to remain stable sequentially at 14.1 basis points (bps) for the quarter.

Also, management anticipates performance fees to show moderate improvement in the quarter owing to the EIG Global Energy Partners, LLC fund. Moreover, the excess cash flow generated from the increased scale and diversity of the business is expected to provide the company with considerable capacity and flexibility to execute on both new investments and share repurchases.

On the cost front, Affiliated Managers expects total interest expenses to remain flat at $22.5 million sequentially in the quarter. Moreover, the company expects amortization expenses to be roughly $30 million, attributable to the scheduled amortization of certain affiliates. Further, management projects pre-tax non-cash imputed interest to fall sequentially to around $1 million. As the company continues to invest in affiliates, we expect expenses to trend higher in the upcoming release.

Notably, Affiliated Managers' quarterly activities were inadequate to win analysts' confidence. Hence, the Zacks Consensus Estimate for the quarter remained unchanged at $2.89 per share over the last 7 days.

Earnings Whispers

Our proven model does not conclusively show that Affiliated Managers is likely to beat the Zacks Consensus Estimate in the third quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) for this to happen. Unfortunately, this is not the case here as you can see below.

Zacks ESP: The Earnings ESP for Affiliated Managers is -0.35%. This is because the Most Accurate estimate of $2.88 per share is below the Zacks Consensus Estimate of $2.89 per share.

Zacks Rank: Affiliated Managers' Zacks Rank #4 (Sell) further decreases the predictive power of ESP, making us less confident of an earnings surprise call.

Stocks That Warrant a Look

Here are a few finance stocks that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter.

The Earnings ESP for Fifth Street Asset Management Inc. FSAM is +5.26% and it has a Zacks Rank #3. The company is slated to report on Nov 16.

Northstar Asset Management Group Inc. NSAM has an Earnings ESP of +3.70% and holds a Zacks Rank #3. It is expected to report on Nov 9.

PennantPark Investment Corp. PNNT has an Earnings ESP of +3.70% and a Zacks Rank #1. It is scheduled to report results on Nov 10.

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AFFIL MANAGERS (AMG): Free Stock Analysis Report

PENNANTPARK INV (PNNT): Free Stock Analysis Report

FIFTH STREET AM (FSAM): Free Stock Analysis Report

NORTHSTAR ASSET (NSAM): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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