• If you are wondering whether Lazard at around US$39.11 is a bargain or a value trap, you are not alone. That question is exactly what this article aims to unpack.
• The stock has been under pressure recently, with a 0.4% decline over the last 7 days, a 24.3% decline over 30 days, and a 21.4% decline year to date. The 1 year return sits at a 5.6% decline, and the 3 year and 5 year returns are 36.7% and 11.2% respectively.
• Recent attention on Lazard has been driven by broader market conversations about capital markets firms and how their fee based and advisory business models are being valued compared to previous cycles. Investors have also been weighing how changing deal activity and market sentiment could influence the outlook for investment banks and advisory firms like Lazard.
• Against that backdrop, Lazard currently scores a full 6 out of 6 on our valuation checks. The rest of this article will walk through the standard valuation tools used to get there, and it will hint at a more rounded way to think about value that will be covered at the end.

Approach 1: Lazard Excess Returns Analysis

The Excess Returns model asks a simple question: is Lazard earning more on its equity than investors require, and if so, how much is that worth per share today?

For Lazard, the starting point is a Book Value of $9.30 per share and a Stable EPS of $5.43 per share, based on the median return on equity from the past 5 years. Against a Cost of Equity of $1.41 per share, this implies an Excess Return of $4.02 per share, meaning earnings are comfortably above the model’s required return.

The model also uses a Stable Book Value estimate of $15.51 per share, sourced from weighted future book value estimates from 3 analysts, and an Average Return on Equity of 35.00%. Combining these inputs produces an Excess Returns intrinsic value of about $86.01 per share.

With the current share price around $39.11, the implied intrinsic discount is 54.5%, which indicates that Lazard is trading materially below this Excess Returns estimate.

Result: UNDERVALUED

Our Excess Returns analysis suggests Lazard is undervalued by 54.5%. Track this in your watchlist or portfolio, or discover 61 more high quality undervalued stocks.

Approach 2: Lazard Price vs Earnings

For a profitable company like Lazard, the P/E ratio is a useful shorthand because it links what you pay for each share directly to the earnings that the business is currently generating.

What counts as a “normal” or “fair” P/E depends on how the market views a company’s growth prospects and risk profile. Higher expected growth and lower perceived risk typically support a higher P/E, while lower expected growth or higher risk usually justify a lower multiple.

Lazard currently trades on a P/E of 15.91x. This sits below the Capital Markets industry average P/E of 30.75x and below the peer average of 20.98x. Simply Wall St’s Fair Ratio for Lazard is 20.61x, which is a proprietary estimate of what the P/E might be given factors such as earnings growth, industry, profit margins, market cap and company specific risks.

The Fair Ratio can be more informative than a simple comparison to peers or the industry because it adjusts for Lazard’s own characteristics rather than assuming it should trade in line with broad averages.

Compared to the Fair Ratio of 20.61x, Lazard’s current P/E of 15.91x suggests the shares are trading below this modelled multiple.

Result: UNDERVALUED

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Upgrade Your Decision Making: Choose your Lazard Narrative

Earlier it was mentioned that there is an even better way to understand valuation. Narratives are introduced here as your way to attach a clear story about Lazard to the numbers that matter. You can link your view of its future revenue, earnings and margins to a financial forecast, then to a fair value, all within a simple tool on Simply Wall St’s Community page. This lets you compare that fair value with the current share price and see whether your story points to Lazard at, above or below your own estimate. You can update that view automatically as new earnings or news arrive and choose between very different outlooks, such as a more optimistic fair value around US$65.00 or a more cautious view closer to US$46.00, depending on which story you believe is more realistic.

Do you think there's more to the story for Lazard? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.