We have reiterated our Neutral recommendation on
Janus Capital Group Inc.
), based on the company's better expense management and healthy
capital position. However, downtrend in performance fees is a
matter of concern.
Janus Capital has been striving hard to strengthen its businesses.
The company is currently focused on enhancing its fixed income
business including trading and investment. It ended 2011 with more
than $20 billion in fixed income AUM for the first time in the
history of the company. Moreover, second quarter 2012 marked the
14th consecutive quarter of fixed income business recording
positive net sales at $1.1 billion. We expect the company's
strategic efforts to lead to such strong outcomes and thereby aid
top-line expansion in the upcoming quarters.
Janus Capital continues to improve its operating leverage by
enhancing its organic growth in addition to focusing on reducing
expenses and strengthening both fixed and discretionary cost
savings. We expect the company's strategy of achieving growth with
operating leverage to boost both the top and bottom-line results
and provide a greater foundation to the company's operations in the
As a result of the strengthening of balance sheet due to the early
retirement of debt, Janus Capital's Board of Directors increased
regular quarterly cash dividend by 20% in April 2012. Such actions
are expected to boost investors' confidence in the company.
On the flip side, majority of the company's total assets are in
equities, which makes it more vulnerable to the volatilities of the
equity market. The performance of fundamental equity funds remained
volatile in the past few quarters due to fluctuation in sales, as
well as overall redemptions. Outflows of fundamental equity funds
decreased to $4.4 billion in the first half of 2012 from $5.1
billion recorded in the comparable prior-year period, primarily
driven by lower redemptions. Despite having declined, these
outflows will affect the company's financials through lower
performance fees, thereby hampering overall growth.
Nevertheless, given its healthy balance sheet, positive operating
leverage and dividend increment, we believe Janus has the potential
to outperform its peer group in the long run. The risk-reward
profile of Janus Capital is currently balanced and hence, we have
reiterated our Neutral recommendation on its shares.
Janus Capital currently retains a Zacks #2 Rank, which translates
into a short-term Buy rating. The company's peer -
AllianceBernstein Holding L.P.
) also retains a Zacks #2 Rank.
ALLIANCEBERNSTN (AB): Free Stock Analysis
JANUS CAP GRP (JNS): Free Stock Analysis Report
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