Citigroup's Pair Trade: Overweight AMG, Underweight T. Rowe Price Group

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William Katz of Citigroup on Thursday introduced a pair trade between Overweight-rated
Affiliated Managers GroupAMG
and Underweight-rated
T. Rowe Price GroupTROW
given a “favorable trade-off” between the two Asset Managers. Katz offers four reasons for the pair trade:
  • AMG is better aligned to the “shifting landscape” for Asset Managers given its global boutique alpha generation platform as opposed to T. Rowe Price's “Style-Box” profile.
  • The near-term flow dynamics tilt in AMG's favor.
  • AMG offers better “bang for the buck” capital return along with a superior earnings per share compounded annual growth rate through 2017.
  • Relative upside favors AMG.
“T. Rowe Price has proven defensive historically around market volatility and trades at a lower EV/EBITDA multiple relative to AMG,” Katz wrote. “However, we see AMG's model as increasingly resilient to market dynamics; both are equity-centric (immunizing flow rotation risks)' while both would seemingly benefit from a pickup in domestic equity inflows.” Shares of AMG are Overweight rated with a $250 price target while shares of T. Rowe Price are Underweight rated with an $80 price target.
Posted In: NewsAMGAsset ManagersT Row PriceWilliam Katz
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