On Dec 11, 2013, we reiterated our long-term recommendation on Janus Capital Group Inc. (JNS) at Neutral. Our stance is based on the company’s best-in-class investment boutique, its ability to grow assets under management (AUM) and revenues, along with competitive leverage growth. However, weakness in flows and a persistent low interest-rate environment remain concerns.
Why Neutral?
Janus Capital reported third-quarter 2013 earnings per share of 17 cents, in line with the Zacks Consensus Estimate. However, results compared favorably with the prior-year quarter figure of 15 cents. Quarterly earnings benefited from top-line growth, increased AUM and fall in operating expenses.
We consider Janus Capital to be a sound asset for yield-seeking investors. The company’s board of directors hiked its regular quarterly cash dividend by 17% in Apr 2013. Notably, during the first nine months of 2013, the company repurchased common stock worth $22.2 million and paid $26.5 million as dividends to shareholders.
Apart from focusing on organic growth, Janus Capital is strategizing on reducing expenses and boosting both fixed and discretionary cost savings to improve its operating leverage. For the remainder of 2013, the company will concentrate on delivering strong long-term investment performance by controlling expenses and continuing to invest in the business for long-term growth.
However, at the current level, the asset management business is under cyclical and secular pressures, along with the present margin pressures – much of which has been aggravated by the financial crisis. These pressures include volatile markets as well as new and more stringent regulatory requirements. Though Janus Capital remains well positioned over the long term, considering the short-term performance hindrances and macroeconomic headwinds, a limited upside is expected in the near term.
Over the last 30 days, the Zacks Consensus Estimate for 2013 remained stable at 62 cents per share, while it increased 1.4% to 73 cents per share for 2014. Hence, the company now carries a Zacks Rank #3 (Hold).
Other Stocks Worth Consideration
Some better-ranked investment managers include Artisan Partners Asset Management Inc. (APAM), Waddell & Reed Financial, Inc. (WDR) and Virtus Investment Partners, Inc. (VRTS). All these stocks have a Zacks Rank #1 (Strong Buy).
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