Legg Mason Inc LM reported better-than-expected second-quarter earnings after the close Oct. 25.
The Analyst
Credit Suisse's Craig Siegenthaler downgraded Legg Mason from Outperform to Neutral with a price target of $49.
The Thesis
The analyst has a 12-month price target of $49 for the stock, which implies a return of 15 to 20 percent. (See Siegenthaler's track record here.)
The potential return is higher than a return on an investment in peer companies, but lower than the potential return on an investment in stocks that have Credit Suisse's Outperform rating — leading to Siegenthaler's downgrade.
"We also now think our current LM thesis is not significantly differentiated from the consensus," the analyst said.
In case of a severe correction in the equity markets, Legg Mason could be required to slow or stop its buyback, which would help prevent the company from hitting its 3x debt covenant in the event of an earnings decline, according to Credit Suisse.
Siegenthaler raised 2018 and 2019 EPS estimates from $2.79 and $3.38 to $2.91 and $3.90, respectively.
The Price Action
Legg Mason has gained around 37 percent since Jan. 3, 2017. The stock was down 0.69 percent at $41.19 at the time of publication.
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