Citigroup downgrades Legg Mason to Neutral, Cuts PT to $27

Citigroup lowered its rating on Legg Mason LM from Buy to Neutral and lowers its target price from $33 to $27, reflecting long term flow uncertainty, reduced EPS outlook and lower sector valuations. Citigroup says, “We are increasingly concerned around two building trends that could further temper FI recovery, layering greater flow uncertainty on top of continued uneven Equity flows. First, investors are dis-aggregating Core/Core Plus mandates into more specific credit/income mandates. Second, we see growing threat from passive akin to similar development for traditional L/C equities, adding another flow wrinkle. Concurrently, incremental margin improvement may be tougher to deliver following on the current profitability program that ends in March 2012 while repurchase activity could be constrained should the flow picture not more readily improve. “ LM closed at $25.23 per share on Monday, down 3.11 percent.