Balanced Risk-Reward for Legg Mason - Analyst Blog

On Mar 13, 2014, we issued an updated research report on Legg Mason Inc. LM. This MD based investment management firm recently reported impressive fiscal third-quarter 2014 results. Results were aided by top-line growth and improved assets under management (AUM), partially offset by higher operating expenses. Though the company exhibits decent fundamentals, we remain cautious due to the current economic uncertainty across the industry.

On Jan 31, Legg Mason came out with fiscal third-quarter 2014 earnings of $1.03 per share, outpacing the Zacks Consensus Estimate by 3.0%. Driven by increased average equity AUM and higher performance fees, total revenue came in at $720.1 million, up 7% year over year.

Legg Mason's sound liquidity position has helped the company to invest in strategic acquisitions over the past few years. Recently, the company announced its decision to acquire New York based private asset manager QS Investors to expand its global investment products portfolio. We believe such initiatives will enhance the company's inorganic growth strategy.

Further, Legg Mason exhibits consistent efforts in enhancing shareholder value through its efficient capital deployment activities. During the first nine months of fiscal 2014, the company repurchased shares worth about $270.0 million and paid $46.3 million through dividends.

Despite these positives, we believe there are certain concerns that may pose threats to the company's financials in the near term. These include absence of credible measures to control increased level of net outflows, a low interest rate environment that affects the yield of money market funds and the prevailing stringent regulatory landscape.

Further, the Zacks Consensus Estimate over the past 60 days declined more than 1% to $3.45 per share for fiscal 2014. Also, for fiscal 2015, it declined 3.1% to $4.06 per share.

Legg Mason currently carries a Zacks Rank #3 (Hold).

Stocks That Warrant a Look in the Sector

Fortress Investment Group LLC FIG, Lazard Ltd. LAZ and Och-Ziff Capital Management Group LLC OZM are better-ranked stocks in this space. All these hold a Zacks Rank #1 (Strong Buy).