On Tuesday, Legg Mason Inc. (LM) reported its preliminary assets under management (AUM) of $673.5 billion for the fiscal second quarter of 2011 (ended September 30, 2010), up 4.4% from $645.4 billion as of June 30, 2010 but down 4.2% from $702.7 billion as of September 30, 2009.
Some stability in equity markets during the quarter led Legg Mason’s equity AUM to spike 8.9% to $169.6 billion from $155.8 billion at the end of the prior quarter and 2.4% from $165.6 billion at the end of the prior-year quarter. The company’s fixed income AUM managed to increase 3.8% to $371.6 billion from $357.9 billion as of June 30, 2010 but declined 3.7% from $385.7 billion as of September 30, 2009.
The equity and fixed AUM hikes from the prior quarter have led to a 5.3% raise in long-term AUM of Legg Mason to $541.2 billion, though there was a 1.8% year-over-year decline. Liquidity assets, which are convertible into cash, increased slightly to $132.3 billion from $131.7 billion as of June 30, 2010 but declined 12.6% from $151.4 billion as of September 30, 2010.
Legg Mason’s first-quarter 2011 earnings of 30 cents per share were a penny below the Zacks Consensus Estimate. Results reflected a higher-than-expected increase in operating expenses and a lower AUM, partially offset by an increase in revenues.
Legg Mason is scheduled to announce its second quarter 2011 results on October 27, 2010. The Zacks Consensus Estimate for the second quarter 2011 for the company is 37 cents per share.
Legg Mason continues to reel under the acute recessionary environment as most of the company’s businesses continue to face difficult market conditions. Management believes the conditions will remain moderately challenging in the upcoming quarters as well. Near-term challenges persist with asset outflows.
However, Legg Mason’s diversified product mix and leverage to the changing demographics in the market are encouraging. Additionally, with the restructuring initiatives and the cost-cutting measures, we expect operating leverage to improve while share buybacks should reinvigorate investors’ confidence in the stock.
Legg Mason currently retains its Zacks #3 Rank, which translates to a short-term Hold rating. Also, considering the fundamentals, we have a Neutral stance on the shares in the long term.
