Please ensure Javascript is enabled for purposes of website accessibility

Is Ameriprise Financial a Buy?

By Dave Kovaleski - Feb 3, 2021 at 6:00AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The financial services company posted solid revenue and earnings gains in the fourth quarter, but where will it go from here?

Ameriprise Financial (AMP 1.52%) had a good run in 2020, outperforming the S&P 500 with a total return of 19%. Some may find this surprising considering that most large financial-sector stocks were in negative territory for the year. But as one of the largest wealth managers in the U.S., Ameriprise's services were in high demand due to the period's high volatility.

The company finished the year strong, beating analysts' estimates in the fourth quarter with year-over-year gains in revenue and adjusted earnings. Can it keep the momentum going in 2021?

All business segments posted Q4 revenue gains

A woman, who is a financial advisor, standing in front of her office, smiling, with her arms folded, ready to help.

Image source: Getty Images.

While Ameriprise's primary source of revenue is its advice and wealth management business, it also makes money from its asset management and retirement and protective solutions arms. The company offers asset management through its Columbia Threadneedle Investments subsidiary, and annuities and insurance through its retirement and protective solutions group.

The company reported an 8% increase in adjusted operating earnings in the fourth quarter to $4.53 per share on $559 million of adjusted operating earnings. Ameriprise made a point of specifying those adjusted earnings because its GAAP (generally accepted accounting principles) results were "negatively impacted by market changes that affected credit spreads and the valuation of derivatives," the company said in its earnings release. "The reduction in short term interest rates impacted adjusted operating earnings by $303 million in 2020."

Ameriprise generated $3.1 billion in adjusted operating revenue -- a 3% increase year over year. About $1.8 billion of that came from advice and wealth management, a 4% increase that was driven by an 82% rise in wrap account net inflows to $7.9 billion. Wrap accounts are investment portfolios that are professionally managed for a fee.

"This was another record for us and a great indication of our excellent client, advisor engagement, and focus on growth," said Chairman and CEO James Cracchiolo on the fourth-quarter earnings call. Total client assets in this segment of the business grew 14% to a record $732 billion. It speaks to the company's status as an industry leader in wealth management that more funds flowed into it during a volatile year.

The asset management business's revenue jumped 4% year over year to $798 million and assets under management increased 11% to $547 billion. The company had $7 billion in net inflows, up from $3.3 billion a year ago. Those inflows were driven by the retail funds segment.

Also, the retirement and protection solutions business, which is the insurance and annuities business, saw a 2% increase in revenue to $799 million. While the number of life insurance claims was higher due to COVID-19, the financial impact was limited as a major portion of the mortality risk was reinsured. Further, sales of variable annuities increased by 20%. Annuities without living benefit guarantees accounted for about 60% of variable annuity sales. This trend should continue, as Ameriprise plans to shift to lower-risk products that don't have living benefit guarantees.

Acquisition mode?

Ameriprise is well positioned for another strong year. All three of its businesses should benefit from the expected acceleration of economic growth, particularly its wealth management business, as continued market uncertainty drives investors toward trusted institutions.

In addition, the company is flush with cash. Its largest business segment, advice and wealth management, has $41.5 billion on the books, up from $32.9 billion a year ago. It may invest some of that -- the word is that it's one of the suitors angling to buy Wells Fargo's asset management business. Such an acquisition would be great for Ameriprise, bulking up its asset management business and giving it added scale that would help it compete with the larger players.

But even without it, Ameriprise has consistently produced double-digit percentage annual earnings gains over the past decade and is well positioned to keep doing so. Plus, its return on equity of 26.1% is excellent, which means the company is very efficient in generating profits. It's definitely a stock to consider adding to your portfolio.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Ameriprise Financial, Inc. Stock Quote
Ameriprise Financial, Inc.
$278.49 (1.52%) $4.16
Woori Financial Group Inc. Stock Quote
Woori Financial Group Inc.
$36.62 (2.58%) $0.92

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/28/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.