Baltimore-based Legg Mason Inc. (LM) experienced a decline in its assets under management (AUM) in June on a sequential basis. This was preceded by a drop in both May and April AUM.
Preliminary month-end AUM came in at $662.5 billion, down 1.3% from $671.0 billion at the end of May. Fixed income was almost in line with the prior month, while equity AUM and liquidity AUM plummeted.
Legg Mason’s equity AUM in June inched down 3.1% from the prior month to $181.5 billion while fixed income AUM remained stable at $365.4 billion. The decrease in equity AUM primarily resulted in a 1.0% descend in long-term AUM to $546.9 billion from $552.7 billion at the end of the prior month. On the other hand, liquid assets, which are convertible into cash, edged down 2.2% to $115.6 billion from $118.2 billion at the end of May 2011.
On a quarterly basis, Legg Mason’s AUM was $677.6 billion as of March 31, 2011, up 0.9% sequentially from $671.8 billion, driven by market appreciation, partly offset by net outflows of $8.7 billion. On a year-over-year basis, AUM was down 1.0% from $684.5 billion. Fixed income represented 53% of consolidated AUM as of March 31, 2011, liquidity consisted of 19% and equity comprised 28%.
Besides, average AUM was $673.5 billion, up 0.2% from $672.4 billion in the prior quarter, but inched down 1.1% from $681.2 billion in the year-ago quarter. For fiscal year 2011, average AUM was $669.3 billion compared with $675.5 billion in the prior year.
Estimate Revision Trends
Legg Mason is expected to release its first-quarter 2012 earnings on July 25, 2011. Over the last 30 days, 3 out of the 12 analysts covering Legg Mason have lowered their estimates for the first quarter, while none moved in the opposite direction. Furthermore, for fiscal 2012, 3 out of the 14 analysts have lowered their estimates, while no upward revision was witnessed over the last 30 days.
Currently, the Zacks Consensus Estimate for the first quarter is operating earnings of 39 cents per share, an increase of 30.56% from the year-ago quarter. Furthermore, over the last 30 days, operating earnings estimates for the first quarter and fiscal 2012 have plummeted by 2 cents and 1 cent per share, respectively.
Peer Performance
Legg Mason’s closest competitor Invesco Ltd. (IVZ) reported preliminary AUM of $653.7 billion at the end of June 2011, reflecting a decrease of 1.2% from $661.4 billion at the end of May 2011. The AUM decline was mainly attributable to negative foreign exchange and negative market returns. Invesco’s preliminary AUM, excluding ETFs, Unit Investment Trust (UIT) coupled with passive funds stood at $561.9 billion at the end of June 2011, down 1.1% from $568.0 billion in the prior month.
Further, we believe that 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 continue boosting investors confidence on the stock.
Legg Mason currently retains its Zacks #4 Rank, which translates to a short-term ‘Sell’ rating.
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