The Street Underappreciates Victory Capital, Morgan Stanley Says In Positive Initiation

Victory Capital Holdings Inc (NASDAQ: VCTR) is trading up 15 percent since making its market debut in early February, and there's room for more upside ahead, according to Morgan Stanley. 

The Rating

Morgan Stanley analyst Michael Cyprys initiated coverage on Victory Capital with an Outperform rating and $19 price target.

The Thesis

Victory Capital’s 25-percent discount to peers demonstrates market skepticism over the asset manager’s ability to execute. But the gap is unjustified, Cyprys said. 

“We think the market is pricing in too wide a discount to peers despite largely in-line organic growth,” the analyst said in a Monday note. “Neither an inflection to inflows nor M&A optionality that could boost earnings is reflected in current valuation.”

Cyprys considers Victory Capital an attractive merger play due to the management’s strategic focus on acquisitions, four successful deals over the last four years, the recent hire of an asset management industry banker as CFO and a “unique operating platform that’s built to execute on deals.”

Victory's centralization of distribution, marketing and middle- and back-office functions offer cost synergies and scale benefits that galvanize deals, the analyst said. 

“Victory looks well-positioned for the wave of consolidation that's approaching a highly fragmented industry in the midst of secular change." 

Morgan Stanley expects flow stabilization in 2018 and inflection in 2019 as the market favors small- to mid-cap equity strategies — which represent 65 percent of Victory’s $61.8 billion in assets under management.

Price Action

Victory Capital shares were down 2.48 percent at $12.97 at the time of publication Monday afternoon. 

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