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Legg Mason Could be Hurt by Higher Outflows and Expenses

Zacks Equity Research
Carnival (CCL) reported earnings 30 days ago. What's next for the stock? We take a look at earnings estimates for some clues.

Legg Mason’s LM bottom line is expected to be adversely impacted primarily by escalating expenses. Moreover, higher equity asset under management (AUM) outflows and a stricter regulatory landscape remain headwinds for the company.

The Zacks Consensus Estimate for fiscal 2019 earnings moved down to a loss of 48 cents from earnings of $2.93, over the past 30 days. This underlines analysts’ bearish sentiments regarding the company’s earnings growth prospects. Thus, the stock currently carries a Zacks Rank #5 (Strong sell).

Looking at the fundamentals, the company’s expenses witnessed a three-year (2016-2018) CAGR of 7.5%, mainly due to higher global operating platform development and advertising costs.

Moreover, Legg Mason has been witnessing equity AUM outflows over the last 12 years due to a number of factors, including investment management performance issues. The company’s dismal investment management performance will further escalate its equity AUM outflows. This, in turn, will likely restrain it from achieving overall net inflows. In fact, the company recorded equity outflows in the first nine months of fiscal 2019 as well.

Legg Mason has been increasing its dividend annually since 2010 and has a share-repurchase plan in place. However, its capital-deployment activities may not be sustainable, given its unfavorable debt/equity ratio compared to the industry. Additionally, the company’s stock price performance has been volatile in the past few quarters.

Stocks to Buy Now

Ashford Inc. AINC carries a Zacks Rank of 2 (Buy), at present. Its earnings estimates remained unchanged over the past 30 days. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Eaton Vance Corporation EV holds a Zacks Rank of 2, currently. Its earnings estimates have been revised marginally upward over the past week.

Hamilton Lane Inc. HLNE also carries a Zacks Rank of 2, at present. Its Zacks Consensus Estimate for EPS moved 12.4% up over the past month.

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Legg Mason, Inc. (LM) : Free Stock Analysis Report
 
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Hamilton Lane Inc. (HLNE) : Free Stock Analysis Report
 
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