Why Susquehanna Is Upgrading Lazard

• Shares of Lazard Ltd. LAZ have declined 18.26 percent over the past three months, reaching a low of $$2.08 on September 29.
• Susquehanna’s Doug Sipkin has upgraded the rating on the company from Neutral to Positive, while lowering the price target from $58 to $53.
• Despite the volatility in the market, Sipkin believes that Lazard has a “constructive” fee outlook, given the robust M&A and potential for larger deals, as well as the “emergence of the restructuring market.”

Analyst Doug Sipkin also believes that the company’s improved balance sheet could help with “favorable” capital returns in 2H. In addition, the stock is now trading at a historically low valuation, which makes it attractive.

Sipkin also mentioned that Lazard’s M&A Backlog remained healthy, driven by significant deals that were announced towards the end of 3Q15. “In addition, the potential exists for larger deals rumored in the beverage space,” Sipkin stated.

In addition, the restructuring market appears to be recovering, with Moody’s forecasting default rates at 3.2 percent by February 2016. While it is unlikely that revenues would reach the levels seen in 2009-2010, Sipkin expects a 15-25 percent uptick.

“We believe credit concerns are largely in the energy/commodity space. Accordingly, we do believe LAZ can get the best of both worlds,” the Susquehanna report added.

The 2015 and 2016 EPS estimates have been lowered from $3.78 to $3.63 and from $3.53 to $3.44, respectively.