On Tuesday, UBS downgraded shares of PJT Partners (NYSE:PJT), changing the investment firm's rating from Neutral to Sell. The price target was also adjusted, lowered to $75 from the previous $100.
The rationale behind the downgrade is linked to anticipated challenges in earnings growth for PJT Partners in the near term (NT). UBS projects a significant increase in deferred compensation expenses and a slim possibility for revenue growth sufficient to counterbalance this rise in costs.
The UBS analyst expressed concerns that even with an expected mid-teens percentage increase in strategic advisory revenue for PJT Partners in 2024, it would be difficult to enhance RX revenues. This limitation on revenue expansion is likely to make it challenging for the company to leverage compensation costs effectively. UBS estimates a total revenue growth of about 7% for PJT Partners in 2024.
Additionally, the forecast includes a 27% growth in deferred compensation amortization for PJT Partners, which is expected to hinder the firm's ability to achieve compensation leverage. UBS's adjusted compensation ratio for PJT Partners in 2024 is predicted to decrease by 40 basis points compared to 2023, which contrasts with a consensus estimate of a 220 basis point reduction.
The analyst concluded by drawing parallels between the current outlook for PJT Partners and the difficulties the firm faced in 2021, suggesting that PJT may be entering a period with similar struggles. This comparison to 2021 indicates a cautious stance on the company's near-term financial performance.
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