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AllianceBernstein: Stocks near big support (NYSE: AB)

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Capital market stocks are not making new lows in the stock market right now. The SPDR S&P Capital Markets ETF (KCE) fell relatively low against the SPDR S&P 500 Trust ETF (SPY) in mid-May and held that spot as tech stocks sold off. A small global investment firm also did not resist.

Capital Markets Equities with Alpha since May

Capital Markets Equities with Alpha since May

Stockcharts.com

According to Bank of America Global Research, AllianceBernstein (NYSE:AB) is a financial services company with a significant asset management business in addition to a private wealth management captive platform and sell-side research business. AB is controlled by Equitable Holdings and is organized as a publicly traded partnership. It all depends on how investment dollars flow with the business. A bad year in financial markets does a disservice to the asset manager and the capital markets firm. A downside risk is its corporate partnership structure which now allows for significant ownership levels of long-only active and passive investors (mutual funds).

Expect further price declines if a rotation from active to passive funds persists, as well as fee compression. AB’s research arm also faces headwinds from a shrinking and consolidating industry. A significant international presence, while showing some upside potential, poses a near-term downside risk if geopolitical tensions remain elevated. AB badly needs the markets to recover as it is very pro-cyclical, although BofA notes that the company has done relatively well since the June 16 equity midpoint.

The Tennessee-based $3.2 billion market capitalization capital markets company in the financials sector trades at a low 12-month GAAP price-to-earnings ratio and pays a very high dividend yield of 11 .7%, according to The Wall Street Journal.

On the valuation side, BofA analysts are forecasting a sharp drop in earnings this year, as one would expect with appalling stock and bond performance, including a weak capital market. A slight rebound in EPS in 2023 is expected, and this is confirmed by the Bloomberg consensus earnings per share estimate. BofA, however, is more optimistic heading into 2024.

All the while, the stock has a low operating and GAAP P/E along with decent free cash flow. This free cash flow should help sustain a high yield, but perhaps not at the current extreme rate north of 11%. A multiple of 11 or 12 has been its five-year average, according to Seeking Alpha, so that might be reasonable, given its current forward operating P/E.

AB share: earnings, valuation, dividend forecasts

AB: Earnings, valuation, dividend forecasts

BofA Global Search

Looking ahead, corporate events data provided by Wall Street Horizon shows a confirmed third quarter earnings date of Friday, October 28 BMO with an earnings call at 10 a.m. You can listen live here. The schedule is light so far.

Corporate Events Calendar

Corporate events calendar

wall street skyline

The technical grip

AB looks interesting here. Notice how the stock has returned to a major consolidation range from 2018 to 2019. The $26-$31 area should be supportive, and we’ve actually seen some buyers stepping in on a recent drop near $31. Although just 4% off the October low, this is a slight outperformance versus the S&P 500 last week.

The RSI, however, remains firmly in bearish oversold conditions, well below the May low, confirming a new low in price. Additionally, the downward sloping 200-day moving average has already provided key resistance twice this year. Thus, the bulls have their work cut out for any relief rally.

We can watch for another probe lower in the $26-$31 range in the coming weeks, and perhaps this is accompanied by a higher low on the RSI for a signal of bullish divergence.

AB: Buyers about to step up?

AB: Buyers about to step up?

Stockcharts.com

The essential

AB stock looks fairly valued, although I wonder if further EPS cuts (and even a dividend cut) are looming. If so, we could see some downside, but long-term investors and technical swing traders can probably use this move as an opportunity to go long.