Baltimore-based Legg Mason Inc. (LM) experienced a slight increase in its assets under management (AUM) in March on a sequential basis. This was preceded by a modest rise in February and stable AUM in Janaury.
Preliminary month-end AUM came in at $ 677.6 billion, up 0.7% from $ 672.7 billion at the end of February. Fixed income, equity and liquidity AUM, all three grew sequentially during the month.
Legg Mason’s equity AUM in March inched up 0.5% from the prior month to $ 189.6 billion and fixed income AUM increased 0.9% from the prior month to $ 356.6 billion. The increase in equity and fixed income AUM primarily resulted in a 0.8% climb in long-term AUM to $ 546.2 billion from $ 542.1 billion at the end of the prior month. Moreover, liquid assets, which are convertible into cash, increased 0.6% to $ 131.4 billion from $ 130.6 billion at the end of February 2011.
On a quarterly basis, Legg Mason’s AUM was $ 671.8 billion as of December 31, 2010, down 0.3% sequentially from $ 673.5 billion due to net outflows of $ 16.7 billion, significantly offset by market appreciation of $ 14.8 billion. On a year-over-year basis, AUM inched down 1.0% from $ 681.6 billion. Fixed income represented 53% of consolidated AUM as of December 31, 2010, liquidity represented 20% and equity comprised 27%.
Estimate Revision Trends
Legg Mason is expected to release its fourth-quarter 2011 earnings on May 9, 2011. Over the last 30 days, 1 of the 14 analysts covering Legg Mason has decreased the estimate for the fourth quarter and one moved north. Furthermore, for fiscal 2011, 2 of the 15 analysts have decreased their estimates, while one upward revision was witnessed over the last 30 days.
Currently, the Zacks Consensus Estimate for the fourth quarter is operating earnings of 46 cents per share, a surge of 17.03% from the year-ago quarter. Furthermore, over the last 30 days, operating earnings estimate for the fourth quarter and fiscal 2011 remained stable.
Peer Performance
Legg Mason’s closest competitor Invesco Ltd. (IVZ) reported preliminary AUM of $ 641.9 billion, at the end of March 2011, up 0.1% from $ 641.1 billion at the end of February 2011. The marginal improvement in AUM was primarily driven by positive returns from financial markets and net long-term flows. These were partially offset by increased volatility of foreign currencies against the U.S. dollar that resulted in $ 0.9 billion in AUM.
Though near-term challenges remain with slow economic recovery, we believe Legg Mason has the potential to outperform its peers in the long run, given its diversified product mix and leverage to the changing demographics in the market.
However, in the near term, assets outflows remain a significant headwind. Yet, with the restructuring initiatives and the cost-cutting measures, we expect operating leverage to improve, and share buybacks to boost investors’ confidence on the stock.
Legg Mason currently retains its Zacks #3 Rank, which translates to a short-term Hold rating. Considering the fundamentals, we have a long-term Neutral recommendation on the stock.
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