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Will Higher Assets Support Legg Mason (LM) in Q1 Earnings?

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·4 min read
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Legg Mason LM is scheduled to report first-quarter fiscal 2021 (ended Jun 30) results on Jul 27, before market open. The company’s earnings are expected to have decreased year over year.

In the last reported quarter, its earnings surpassed the Zacks Consensus Estimate. Higher revenues, resulting from elevated investment advisory fees, drove its performance in the same period. However, a fall in assets under management (AUM) was a major drag.

Legg Mason has an impressive earnings surprise history. Its earnings surpassed estimates in each of the trailing four quarters, the surprise being 10.4%, on average.

Legg Mason, Inc. Price and EPS Surprise


Legg Mason, Inc. Price and EPS Surprise
Legg Mason, Inc. Price and EPS Surprise

Legg Mason, Inc. price-eps-surprise | Legg Mason, Inc. Quote

Factors at Play

Strong Markets: Performance of equity markets was decent during the June-end quarter despite lingering concerns due to the coronavirus pandemic. The S&P 500 Index gained 25.5% in the quarter. Moreover, the index measuring international equity performance — the MSCI EAFE — delivered net returns of 14.9% in the quarter under review. This might have supported the California-based asset manager’s performance to a large extent.

Higher AUM: Per the monthly metrics data published by Legg Mason, preliminary total AUM as of Jun 30, 2020, was $783.4 billion, up 2.7% from the Mar 31, 2020 level. The rise seems to be majorly due to net inflows in fixed income. Hence, performance fees and investment management fees are likely to have recorded a rise in the quarter.

Muted Revenues: Investment advisory fees, which constitute a significant portion of the company’s revenues, might have decreased in the fiscal first quarter. The consensus estimate for investment management fees from funds indicates a fall of 3.2% from the prior-quarter reported number. Also, the Zacks Consensus Estimate of $66 million for distribution and service fees is projected to remain flat sequentially in the quarter.

Controlled Costs: Legg Mason initiated a restructuring to reduce costs, which is expected to have lent support in the fiscal first quarter as well.

Here is what our quantitative model predicts:

The chances of Legg Mason beating the Zacks Consensus Estimate in the quarter are high. This is because it has the right combination of the two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: The Earnings ESP for Legg Mason is currently pegged at +1.18%.

Zacks Rank: Legg Mason currently sports a Zacks Rank of 1 (Strong Buy).

The company’s activities in the fiscal first quarter were adequate to win analysts’ confidence. As a result, the Zacks Consensus Estimate for earnings of 71 cents was revised upward over the last 30 days. Nevertheless, the figure implies a fall of 5.3% from the year-ago reported figure. Also, the consensus estimate for sales of $692.3 million indicates a 1.8% decline.

Stocks to Consider

The Earnings ESP for Moody’s Corporation MCO is +2.14% and it carries a Zacks Rank of 3 at present. The company is slated to report second-quarter numbers on Jul 29. You can see the complete list of today’s Zacks #1 Rank stocks here.

UMB Financial Corporation UMBF is set to release earnings figures on Jul 28. The company, which carries a Zacks Rank of 3 at present, has an Earnings ESP of +2.22%.

Franklin Resources, Inc. BEN is scheduled to release quarterly results on Jul 28. The company has an Earnings ESP of +5.61% and currently sports a Zacks Rank of 1.

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UMB Financial Corporation (UMBF) : Free Stock Analysis Report
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