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Legg Mason (LM) to Post Q2 Earnings: What's in the Offing?

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Legg Mason (LM) to Post Q2 Earnings: What's in the Offing?

Legg Mason (LM) might record lower assets under management and fall in revenues in the fiscal second quarter due to lesser client activity. However, costs are likely to be under control.

Legg Mason LM is scheduled to report second-quarter fiscal 2019 (ended Sep 30) results on Oct 24, after the market closes. While its earnings are projected to grow year over year, revenues might decline.

In the last reported quarter, the company reported a positive earnings surprise of 2.6%. Growth in assets under management (AUM) and lower expenses were partially offset by fall in revenues.

Moreover, Legg Mason boasts an impressive earnings surprise history. Its earnings have surpassed estimates in each of the trailing four quarters with an average positive surprise of 15.5%.


Legg Mason, Inc. Price and EPS Surprise

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

Despite an impressive earnings beat streak, the company’s price performance does not seem impressive. In the past six months, its shares have lost 22.8% compared with 13.6% decline recorded by the industry.

Now, before we take a look at what our quantitative model predicts, let’s discuss the factors that are likely to impact fiscal second-quarter results.

Factors at Play

AUM Might Witness Fall: The asset manager is expected to reflect lower AUM as uncertainty mainly related to the rising trade-war fears in the September-end quarter failed to significantly boost client activity. In the reported monthly metrics for July and August, the company witnessed fixed income and equity net outflows. Also, the Zacks Consensus Estimate of $752 billion shows slight decline year over year.

Revenues Likely to Decline: Lower AUM during the quarter is likely to weigh on Legg Mason’s performance fees as well. The consensus estimate for performance fees of $25 million reflects a 39% slump from the prior-year quarter.

Additionally, distribution and service fees are projected to be $80 million, down 1.2% from the year-ago quarter. Thus overall, revenues are projected to fall.

Costs Might Remain Under Control: With a decline in AUM, distribution and servicing expenses are likely to be down as well. Further, management predicts compensation ratio to remain in the range of 53-55%, highlighting lower seasonal impacts. Further, the operating margin is expected to display a slight decrease due to the seasonal expenses and decline in NPT performance fees.

Here is what our quantitative model predicts:

Our proven model indicates that chances of Legg Mason beating the Zacks Consensus Estimate are low as it doesn’t has the right combination of the two key ingredients — positive Earnings ESP and a Zacks Rank #3 (Hold) or better.

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 -0.18%.

Zacks Rank: Legg Mason currently has a Zacks Rank of 3, which increases the predictive power of ESP. But we need to have a positive Earnings ESP to be sure of the positive surprise.  

Also, activities of the company in the fiscal second quarter failed to win analysts’ confidence. As a result, its Zacks Consensus Estimate for earnings of 83 cents has moved 2.4% down over the past 30 days. Nonetheless, the figure reflects a year-over-year improvement of 5.1%.

Stocks That Warrant a Look

Here are some stocks you may want to consider, as according to our model these have the right combination of elements to post an earnings beat this quarter.

The Earnings ESP for SVB Financial Group SIVB is +1.22% and the stock carries a Zacks Rank #1 (Strong Buy). The company is scheduled to release third-quarter results on Oct 25. You can see the complete list of today’s Zacks #1 Rank stocks here.

Cullen/Frost Bankers CFR has an Earnings ESP of +0.07% and holds a Zacks Rank of 3. It is slated to report results on Oct 25.

T. Rowe Price Group TROW has an Earnings ESP of +0.78% and carries a Zacks Rank #2 (Buy). It is set to report September quarter-end results on Oct 25.

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Cullen/Frost Bankers, Inc. (CFR) : Free Stock Analysis Report
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