On Wednesday, Standard & Poor's (S&P) downgraded its
Janus Capital Group, Inc.
) to 'Negative' from 'Stable'. Moreover, the rating agency
affirmed the company's long-term issuer credit rating at 'BBB-'.
JANUS CAP GRP (JNS): Free Stock Analysis
MOODYS CORP (MCO): Free Stock Analysis Report
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Reasons for the Downgrade
S&P stated that the downgrade was mainly driven by probable
deterioration of profitability and key credit metrics this year,
owing to continued net asset outflows. The outflows in
fundamental equities and mathematical equities remain the
Janus Capital's problem compounded as equities constituted
roughly 82% of its assets under management (AUM), as of September
30, 2012. During the nine months period ended September 30, 2012,
outflows of fundamental equities and mathematical equities were
$7.7 billion and $4 billion, respectively.
According to the rating agency, the stumbling block for Janus
Capital is improving its long-term investment performance. Janus
Capital's profitability dropped during the first nine months of
2012 due to a decline in average AUM and an increase in negative
performance fees. For the nine months ended September 30, 2012,
Janus Capital's performance fees were negative $61.8 million,
compared with negative $2.5 million in the prior-year period.
S&P anticipates that Janus Capital will face considerable
difficulty in improving its long-term financial performance due
to the persistent negative performance fees, which will
negatively impact the company's profitability over the upcoming
However, S&P has maintained Janus Capital's long-term issuer
credit rating. The affirmation of the rating depicts S&P's
belief in the company's efforts to diversify its business by
expanding the fixed income and international businesses. Further,
the company's efforts to reduce its outstanding debt obligations
during the past several years are encouraging. Moreover, Janus
Capital is expected to considerably benefit from its strategic
alliance with the Dai-ichi Life Insurance Company.
Rating Actions by other Agencies
In May 2012, Moody's Investors Service - a rating arm of
) - upgraded the rating outlook to "stable" from "negative"
besides affirming the Baa3 senior unsecured debt rating of Janus
Capital. The ratings reflected Janus Capital's improved liquidity
and healthy balance sheet.
Rating revisions play a major role in preserving investors'
confidence in the stock and help boost the company's
creditworthiness in the market. Though Janus Capital is
addressing such issues, further rating downgrades are likely
following pressure on credit quality and profitability.
Overall, we expect the company to perform well based on its
healthy balance sheet and best-in-class investment boutique.
Also, it has the potential to improve its AUM and revenue along
with competitive leverage.
However, a tepid economic recovery, regulatory issues and the
expectation of continued low interest rate environment are
projected to limit the stock's upside potential in the upcoming
Janus Capital currently retains its Zacks Rank #3 (Hold).