Legg Mason's November AUM Falls - Analyst Blog

Baltimore-based Legg Mason Inc. (LM) experienced a drop in its assets under management (AUM) in November following a small rise in October. The company reported preliminary month-end AUM of $667.7 billion for November, down 1.3% from $676.6 billion at the end of the prior month. The decline primarily reflects a fall in fixed income AUM. The company posted around 0.5% increase in AUM in October.

While Legg Mason's equity AUM in November was slightly down by 0.5% from the prior month to $174.1 billion, fixed income AUM declined 3.2% from the prior month to $360.0 billion. The decrease in fixed AUM primarily resulted in a 2.3% fall in Legg Mason's long-term AUM to $534.1 billion in November from $546.9 billion at the end of prior month. However, liquid assets, which are convertible into cash, increased 3.0% to $133.6 billion from $129.7 billion at the end of October 2010.

Legg Mason which competes with companies such as Blackstone Group (BX) and AllianceBernstein Holding L.P. (AB) reported asecond-quarter 2011 (period ended September 2010) adjusted earnings of 44 cents per share, ahead of the Zacks Consensus Estimate of 36 cents. Results improved based higher revenues coupled with an increase in total AUM, partially offset by higher operating expenses.

As of September 30, 2010, Legg Mason's AUM was $673.5 billion, up 4% sequentially from $645.4 billion due to a market appreciation of $40.8 billion, partially offset by net outflows of $12.7 billion. On a year-over-year basis, AUM was down 4.2% from $702.7 billion. Fixed income represented 55% of the consolidated AUM as of September 30, 2010, liquidity represented 20% and equity comprised 25%.

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. Additionally, with the restructuring initiatives and the cost-cutting measures, we expect operating leverage to improve while share buybacks to boost investors' confidence in the stock.

Legg Mason currently retains its Zacks #3 Rank, which translates to a short-term ‘Hold' rating. Considering the fundamentals, we have a ‘Neutral' stance on the shares in the long term.

 
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