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Legg Mason's Investment Strategies Impress: Time to Hold?

Zacks Equity Research

Legg Mason’s LM organic growth on the back of rising assets under management (AUM) and diverse investment strategies seems encouraging. Product diversification through opportunistic acquisitions will help boost inflows. However, persistent equity AUM outflows and elevated expenses keep its top line under pressure.

Last week, the company reported a marginal rise in its July AUM from the prior month. This increase was attributed to higher fixed income and alternative inflows, partly offset by equity and liquidity outflows.

Shares of Legg Mason have appreciated 44.5% year to date, outperforming the industry’s rally of 8.2%.

Also, the company’s earnings estimates for fiscal 2020 and fiscal 2021 have been revised 3.4% and 1% upward, respectively, in the last 60 days. The stock currently carries a Zacks Rank #3 (Hold).

The Baltimore, MD-based investment manager continues to undertake inorganic growth strategies on the back of its sound liquidity position. So far, these acquisitions have helped the company expand its product offerings and global reach.

Organic growth is Legg Mason’s key strength, as reflected by its revenue growth story. Though operating revenues declined in the first three months of fiscal 2020, it demonstrated a 3% improvement at a CAGR, over the last four years (ended fiscal 2019). This upside was mainly driven by the company’s improving AUM balance.

However, Legg Mason has been witnessing persistent rise in expenses, primarily due to higher global operating platform development and advertising costs. Also, increasing compensation and benefit costs are contributing factors. Further, due to poor performance of its investment management segment, the company has been witnessing equity AUM outflows for the last few years. The trend was reflected in first-quarter fiscal 2020 as well, posing a threat in achieving steady overall net inflows.

Stocks to Consider

T. Rowe Price Group, Inc. TROW has been witnessing upward estimate revisions for the past 60 days. Moreover, this Zacks #1 Ranked (Strong Buy) stock has rallied more than 18% year to date. You can see the complete list of today’s Zacks #1 Rank stocks here.

Artisan Partners Asset Management Inc. APAM has been witnessing upward estimate revisions for the past 60 days. Further, the company’s shares have gained 21.1% year to date. At present, it carries a Zacks Rank of 2 (Buy).

Ameriprise Financial, Inc. AMP has been witnessing upward estimate revisions for the past 60 days. Additionally, the stock has jumped around 22.7% year to date. It currently carries a Zacks Rank #2.

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