Though benefits from a stabilizing economy and gradually improving interest-rate scenario had positioned the investment-management industry well, investment managers might be affected by the Fed’s dovish stance, hinting at no rate hikes this year, along with lower expectations for GDP growth and inflation despite a decent labor market. Further, margin compression as well as escalating compliance and technology costs will likely hurt investment managers’ profits in the near term.
Nevertheless, most investment managers have waived off majority of their fees with the rates rising since 2016. This decline in fee waivers has aided companies’ top-line growth. Moreover, most asset managers registered solid revenue growth in the first quarter this year, backed by increase in assets under management (AUM).
Performance of equity markets remained favorable during the March-end quarter, as reflected by the nearly 13.1% quarterly growth of the S&P 500 Index which resulted in a higher AUM.
Therefore, we are focusing on two investment managers — Legg Mason, Inc. LM and T. Rowe Price Group, Inc. TROW.
T. Rowe Price, with a market cap of $25.3 billion, is a publicly-owned investment manager providing services to its clients, and investing in public equity and fixed income markets globally. Legg Mason, a publicly-owned asset management holding company, provides investment management and related services to company-sponsored mutual funds and other investment vehicles to global, institutional and retail clients, and has a market cap of $3.2 billion.
Both Legg Mason and T. Rowe Price currently sport a Zacks Rank #1 (Strong Buy), with a Value Score of B and a Value Score of C, respectively. Our research shows that stocks with a Value Score of A or B, when combined with a Zacks Rank #1 or 2 (Buy), offer the best upside potential.
You can see the complete list of today’s Zacks #1 Rank stocks here.
Though both asset managers have similar business trends, deeper research into the financials will help decide which investment option is better.
Both asset managers have outperformed the industry (up 11.9%) in the past six months. While shares of T. Rowe Price have gained 14.4%, Legg Mason’s stock has climbed 44.1%. So, Legg Mason performed better than T. Rowe Price.
Both companies have been deploying capital in terms of dividend payments to enhance shareholders’ value. T. Rowe Price has a current dividend yield of 2.85%, while Legg Mason has a dividend yield of 3.62%.
As compared with the industry’s average of 2.97%, shareholders of Legg Mason gain more.
Legg Mason has a debt-to-equity ratio of 0.53 as compared with the industry average of 0.44. But T. Rowe Price, with ratio of 0.03, has an edge over Legg Mason.
Return on Equity (ROE)
ROE is a measure of a company’s efficiency in utilizing shareholders’ funds. ROE for the trailing 12-months for Legg Mason and T. Rowe Price is 7.3% and 28.93%, respectively as compared with the industry’s level of 13.4%. Thus, T. Rowe Price reinvests its earnings more efficiently.
Earnings Estimate Revisions & Growth Projections
The Zacks Consensus Estimate for 2019 earnings of T. Rowe Price climbed nearly 10%, over the last 60 days. The same for Legg Mason moved 4.5% north for the current fiscal year, during the same time frame.
Additionally, T. Rowe Price’s 2019 earnings are projected to jump 3.16% year over year. For Legg Mason, the Zacks Consensus Estimate is pinned at $3.25 for fiscal 2020, reflecting significant year-over-year increase.
Hence, Legg Mason reflects better earnings growth prospects.
Sales for T. Rowe Price for the ongoing year are projected to be up 3.74% year over year to $5.6 billion. For Legg Mason, the Zacks Consensus Estimate is pegged at $2.9 billion for fiscal 2020, reflecting year-over-year decline of 0.87%.
Therefore, T. Rowe Price has an edge here.
Our comparative analysis shows that T. Rowe Price is better positioned than Legg Mason when considering, leverage ratio, reinvesting potential and sales growth expectations. Legg Mason wins on price performance, earnings growth expectations, dividend yield and valuation.
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Legg Mason, Inc. (LM) : Free Stock Analysis Report
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