Buckingham Believes Cowen's Turnaround Is Underappreciated

Cowen Inc (NASDAQ: COWN) represents an underappreciated turnaround story and offers capital optionality, according to Buckingham Research Group.

The Analyst

Buckingham's Chris Walsh initiated coverage of Cowen with a Buy rating and price target of $20.

The Thesis

Management has made clear progress in accelerating Cowen’s top line growth and boosting shareholder returns, Walsh said in the note.

He expressed his optimism regarding the company’s revenue growth and operating margin expansion going ahead, saying that this would be driven by the scaling of the mid-cap oriented IB franchise, particularly M&A advisory.

Cowen would likely achieve higher quality and more consistent earnings, by re-focusing on its investment management segment and leveraging scale advantages in electronic trading, Walsh said. He added that an improvement in earnings quality and consistency should support multiple expansion.

“The real kicker, however, is the potential for significant excess capital to be unlocked in the next 12-18 months,” Walsh wrote. He explained that Cowen would begin monetizing non-core investments worth around 30% market cap, while reallocating excess capital to repurchase shares and make accretive M&A/investments, which will boost profitability and result in an inflection in returns.

Price Action

Shares of Cowen were up 3.05% to $16.36 at the time of publishing on Tuesday.