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What to Expect from Legg Mason's (LM) Q1 Earnings? - Analyst Blog

Legg Mason Inc.LM is scheduled to report fiscal first-quarter 2016 (ended Jun 30, 2015) results on Friday, Jul 31, before the market opens.

Last quarter, Legg Mason's adjusted earnings surpassed the Zacks Consensus Estimate driven by higher investment advisory fees. Higher expenses, however, acted as a headwind.

Notably, this investment manager has outpaced estimates in each of the trailing four quarters, with a positive average beat of 4.24%.

Will Legg Mason be able to keep the earnings streak alive in this quarter? Let's see how things have shaped up for this announcement.

What to Expect?

As of Jun 30, 2015, Legg Mason's assets under management ("AUM") were modestly down from AUM as of both Mar 31, 2015 and Jun 30, 2014. However, equity and fixed income assets were up 1.2% year over year. Given such rise in long-term AUM, we predict improved investment advisory revenues for fiscal first quarter.

Further, while management projects performance fees within $10−$20 million, we expect higher fees, led by improved performance at Brandywine and Martin Currie, similar to the prior quarter.

However, Legg Mason's investment performance during the quarter is likely to be challenged by net equity outflows, according to management. Overall, we expect a decent quarter on the revenue front for Legg Mason.

While majority of expenses are fixed in nature, management projects a rise in compensation expense owing to seasonality. Additionally, the company is likely to incur roughly $8 million in incremental investments toward its global distribution business. Nonetheless, it remains bullish regarding margin expansion owing to absence of integration cost and M&A activity.

Notably, Legg Mason has already repurchased shares worth $14 million during the quarter, and intends to maintain the buy back of shares worth $90 million each quarter.

Further, the company expects to record a one-time tax benefit of approximately $10,000−$20,000, in accordance with amendments to New York City's corporate tax structure; as well as benefit of roughly $12,000 driven by tax planning strategies.

Separately, Legg Mason announced plans to acquire 75% stake in Australia-based specialty asset manager, RARE Infrastructure, Ltd., in Jul 2015. The company seeks to enhance its equity liquid alternative investments offerings with the acquisition. Expected to close in the December-end quarter of 2015, the deal will likely be accretive to the company's earnings in the next calendar year.

However, Legg Mason's activities during the quarter were inadequate to win analysts' confidence. As a result, the Zacks Consensus Estimate remained unchanged at $1.12 per share over the last 7 days.

Earnings Whispers

Our proven model does not conclusively show that Legg Mason is likely to beat the Zacks Consensus Estimate in the upcoming release. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy) or at least 2 (Buy) or 3 (Hold) for this to happen. Unfortunately, this is not the case here as elaborated below.

Zacks ESP: The Earnings ESP for Legg Mason is +0.00%. This is because the Most Accurate estimate stands in line with the Zacks Consensus Estimate of $1.12.

Zacks Rank: Legg Mason's Zacks Rank #3 increases the predictive power of ESP. But we also need to have a positive ESP to be confident of an earnings surprise call.

Stocks to Consider

Here are a few finance stocks you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Investors Bancorp Inc. ISBC has an Earnings ESP of +8.33% and a Zacks Rank #2. It is scheduled to report results on Jul 30.

The Earnings ESP for Financial Engines, Inc. FNGN is +6.25% and it has a Zacks Rank #2. The company is slated to report on Aug 5.

Garrison Capital Inc. GARS has an Earnings ESP of +2.63% and holds a Zacks Rank #2. It is expected to report on Aug 5.

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LEGG MASON INC (LM): Free Stock Analysis Report

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INVESTORS BANCP (ISBC): Free Stock Analysis Report

GARRISON CAPITL (GARS): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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