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Oppenheimer’s Path to Prosperity in 2014

By Greg Pugh on December 17, 2013

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Investors are generally positive for stocks in 2014. They’re not excessively worried about the beginning of the end for the Federal Reserve’s quantitative easing program and they seem to expect continued economic recovery for the rest of the world.

However, investors pulled billions of dollars out of several large asset managers in the third quarter, reflecting increasing caution among institutional clients regarding these companies. Customers withdrew more money than they added for a variety of reasons among the firms, which include T. Rowe Price Group, Franklin Resources, Janus Capital Group, and Federated Investors.

But one firm actually had its assets under management (AUM) increase 12.8 percent during this period: Oppenheimer Holdings (NYSE: OPY).

Oppenheimer is growing its AUM at the expense of its competition and the firm is delivering for investors with an increase of 125 percent in its recent earnings. The stock has the potential to double from its current price; management projects that the company will grow earnings by 72 percent in the coming year.

The company’s assets under management increased 12.8 percent to $23.8 billion at September 30, 2013, a record for the company, compared to $21.1 billion at September 30, 2012, which is the basis for advisory fee billings for the fourth quarter of 2013. The increase in AUM was comprised of asset appreciation of $1.6 billion and net new assets of $1.1 billion.

Oppenheimer reported net income of $5.2 million or earnings per share (EPS) of $0.38 for the third quarter of 2013, compared with net income of $2.3 million or EPS of $0.17 for the third quarter of 2012, an increase of 125.5 percent. Revenue for the third quarter was $243.4 million, compared with $231.8 million in the third quarter of 2012, an increase of 5 percent.

The Private Client segment reported revenue of $144.3 million for the third quarter, 7.9 percent higher than the same quarter a year ago. Income before income taxes was $15.1 million, an increase of 27.6 percent compared with the same quarter a year ago, driven by increases in both transactional and fee-based business during the third quarter of 2013 compared with the same period of 2012.

Asset Management reported revenue of $21.5 million for the third quarter, 8.5 percent higher than the same quarter a year ago. Income before income taxes was $6.4 million, an increase of 54.7 percent compared with the same year-ago quarter, as a result of increased fees earned on managed products as well as lower legal costs.

Year to date as of November 29, the S&P Investment Banking & Brokerage Index was up 47.3 percent, versus a 27.1 percent increase for the S&P 1500 Index. In 2012, the sub-industry index was up 32.9 percent compared to a 13.7 percent advance for the broader index. Oppenheimer Holdings is up 49 percent in the past year.

Oppenheimer is projected to post EPS of $1.36 in 2013. The company is projected to grow EPS by 72 percent to $2.34 in 2014 and to increase EPS by another 25 percent to $2.94 in 2015.

Thomson Reuters consensus has a strong buy rating of 1.0 on the stock. Based on a modest price-to-earnings (P/E) ratio of 20, Oppenheimer Holdings has a 12-month price target of $46, for an increase of nearly 100 percent.

Greg Pugh, an income-investing expert, publishes a newsletter called Investing for Monthly Income.

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