Pros And Cons Of Investing In Ameriprise Financial

Credit Suisse started coverage on Ameriprise Financial, Inc. AMP with a Neutral rating. Justifying the rating, the firm cited that it believes the company's strong cash flow could be offset by potential margin headwinds at its Advice & Wealth Management (A&WM) unit, but DOL fiduciary rule remains a key risk.

Despite generating the highest ROE in Credit Suisse's coverage universe, analyst John Nadel sees a balanced risk/reward from current levels given slowing margins in the company's A&WM segment and uncertainty over the impact of the upcoming DOL fiduciary rule.

"Additionally, underlying net flow trends in Asset Management (excl. former parent outflows) have been weak," Nadel wrote in a note.

Related Link: Ameriprise Study: Majority Of American Couples Feel Confident About Managing Their Finances But Still Disagree About Money

That said, Nadel expects Ameriprise to deploy capital at a combined payout ratio in excess of 100 percent of operating earnings over the next few years given solid free cash flow generation and about $2 billion excess capital.

Moreover, the analyst noted that the company has positive leverage to rising short-term interest rates.

"A December Fed hike by 25bps would add — $0.24 to our 2017/18E EPS," Nadel highlighted.

The analyst's $116 target price is driven by a sum of the parts that applies a blended P/E multiple of 11.1x his 2017 estimated EPS of $10.43.

"We see downside risk in shares to $83, representing 10x a stressed 2017E EPS of $8.34 (20 percent haircut to our current 2017E EPS of $10.43 to reflect weak equity markets and a more onerous short-term impact from DOL implementation)," Nadel added.

At time of writing, shares of Ameriprise fell 1.44 percent to $101.33.

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