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Legg Mason (LM) Rallies 41.1% YTD: Is More Upside Left?

Zacks Equity Research

Shares of Legg Mason LM surged nearly 41.1% year to date as compared with the industry’s growth of approximately 15.9%. Strong fundamentals, driven by steady revenue growth, as well as inorganic expansion strategy seem to be the primary reasons for this impressive stock performance.

Further, this Zacks #1 (Strong Buy) Ranked stock has been witnessing solid estimate revisions. Over the last 60 days, the Zacks Consensus Estimate for fiscal 2020 (ended Mar 31) jumped 4.5% to $3.25 and 3.6% to $3.76 for fiscal 2021.

Moreover, the stock has a stellar earnings surprise history. Legg Mason surpassed estimates, in three of the four trailing quarters, the average beat being 9.51%.



While past performance doesn’t guarantee similar trend in the future, we believe the following factors are enough to support a steady price rally for Legg Mason:

Strategic Acquisitions: Legg Mason has expanded primarily via acquisitions, with majority of its assets under management (AUM) growth being driven by the same. These acquisitions have significantly diversified its product offerings and expanded the company’s market share globally. These investments were in line with the company’s long-term strategy focused on providing investors with choices across investment capability, product and vehicle, and distribution.

Strong Leverage: Legg Mason’s debt/equity ratio is 0.53 compared with the S&P 500 average of 0.71, displaying a relatively lower debt burden. It highlights the financial stability of the company even amid unstable economic environment.

Stock Looks Undervalued: The stock currently has a Value Score of B. The Value Score condenses all valuation metrics into one actionable score that helps investors steer clear of “value traps” and identify stocks that are truly trading at a discount. Our research shows that stocks with a Style Score of A or B, when combined with a Zacks Rank #1 (Strong Buy) or 2, offer the best upside potential.
 
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