On Sep 20, we upgraded asset management firm
Legg Mason Inc.
) to Neutral based on the sequential decline in the company's
expenses. Legg Mason, which focuses on growth and preservation of
clients' capital through its proprietary mutual funds and
separately managed accounts, has also experienced top-line growth
in fiscal first-quarter 2014.
Why the Upgrade?
Legg Mason has been actively striving to improve its
profitability through key initiatives, such as adding innovative
product solutions to client bases, tapping potential investment
capacities, expanding distribution relationships and undertaking
cost-saving measures. We expect the company's aggressive cost
cuts to aid in driving profitability, going forward.
Legg Mason's opportunistic acquisitions are expected to benefit
the company in the near term. The company and its affiliate,
Permal Group, completed the acquisition of London-based
fund-of-hedge-funds firm, Fauchier Partners in the last quarter.
On Jul 25, Legg Mason announced its fiscal first-quarter 2014
adjusted earnings, which missed the Zacks Consensus Estimate but
was above the year-ago figure. Lower-than-expected results were
due to rise in operating expenses. However, top-line growth,
aided primarily by an increase in both investment advisory fees
and other revenues was a tailwind.
Over the past 60 days, the Zacks Consensus Estimate for fiscal
2014 rose 1.2% to $3.38 per share. However, for fiscal 2015, the
Zacks Consensus Estimate declined 0.3% to $3.86 over the same
period. Therefore, Legg Mason currently carries a Zacks Rank #3
Moreover, we are concerned about the low interest rate
environment, decreased asset outflows and a volatile economy. The
asset management business is under cyclical and secular
pressures, which were heightened by the financial crisis. Though
Legg Mason is well positioned over the long term, economic
challenges are expected to persist and negatively impact the
company's near-term results.
Other Stocks to Consider
Apart from Legg Mason, other stocks in the same sector that are
worth consideration include
Affiliated Managers Group Inc.
The Blackstone Group L.P.
Brookfield Asset Management Inc.
). All of these carry a Zacks Rank #2 (Buy).
AFFIL MANAGERS (AMG): Free Stock Analysis
BROOKFIELD ASST (BAM): Free Stock Analysis
BLACKSTONE GRP (BX): Free Stock Analysis
LEGG MASON INC (LM): Free Stock Analysis
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