Legg Mason: Could Be a Bargain
Shares of this asset-management firm have been sliding in recent months, leaving the stock cheap in some analysts' eyes.
Large-scale acquisitions rarely come off without kinks. Indigestion is often the culprit, and the swap of Legg Mason's brokerage unit for Citigroup's money-management business is no exception. Shares of Baltimore-based Legg Mason (symbol LM) soared after the deal was announced a year ago. But the stock has been sliding in recent months, and it dropped sharply after the company's most recently reported earnings missed analysts' estimates by a long shot. At $96, Legg Mason's stock is nearly 30% off its February high.
The discounted shares could be a buying opportunity for value-minded investors, analysts at Friedman Billings Ramsey told clients Wednesday after meeting with Legg Mason's senior managers the day before. "We believe the sell-off more than discounts the risks inherent in the integration," wrote analysts Matt Snowling and Michael Parker. "With an improving earnings picture likely by September, we believe Legg Mason once again provides significant upside opportunities for investors willing to ... look through some near-term noise and choppy market conditions." Snowling and Parker upgraded Legg Mason from "market perform" to "outperform" and maintained a 12-month price target of $125.
The $3.7-billion purchase of Citigroup's asset management business made Legg Mason the country's fifth-largest money manager. The firm's assets currently top $850 billion.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Legg Mason reported that earnings rose 28%, to $1.03 a share, in the fourth quarter of its 2006 fiscal year, which ended in March. But Wall Street had been expecting a profit of $1.25 a share. Following the earnings announcement, the company said cost savings from the Citigroup acquisition had not materialized as quickly as some analysts expected. Chairman and chief executive Raymond "Chip" Mason said the company is adjusting to its new size and that Legg Mason's new earnings power would become more evident by the September quarter.
Legg Mason's shares trade at 18 times the $5.35 per share that analysts expect the company to earn in the fiscal year that ends next March, according to Thomson First Call.
Get Kiplinger Today newsletter — free
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.
-
Here's How To Get Organized And Work For Yourself
Whether you’re looking for a side gig or planning to start your own business, it has never been easier to strike out on your own. Here is our guide to navigating working for yourself.
By Laura Petrecca Published
-
How to Manage Risk With Diversification
"Don't put all your eggs in one basket" means different things to different investors. Here's how to manage your risk with portfolio diversification.
By Charles Lewis Sizemore, CFA Published
-
Fed Sees Fewer Rate Cuts in 2025: What the Experts Are Saying
Federal Reserve The Federal Reserve cut interest rates as expected, but the future path of borrowing costs became more opaque.
By Dan Burrows Published
-
Why Is Warren Buffett Selling So Much Stock?
Berkshire Hathaway is dumping equities, hoarding cash and making market participants nervous.
By Dan Burrows Published
-
Fed Cuts Rates Again: What the Experts Are Saying
Federal Reserve The central bank continued to ease, but a new administration in Washington clouds the outlook for future policy moves.
By Dan Burrows Published
-
If You'd Put $1,000 Into Google Stock 20 Years Ago, Here's What You'd Have Today
Google parent Alphabet has been a market-beating machine for ages.
By Dan Burrows Published
-
Fed Goes Big With First Rate Cut: What the Experts Are Saying
Federal Reserve A slowing labor market prompted the Fed to start with a jumbo-sized reduction to borrowing costs.
By Dan Burrows Published
-
Stock Market Today: Stocks Retreat Ahead of Nvidia Earnings
Markets lost ground on light volume Wednesday as traders keyed on AI bellwether Nvidia earnings after the close.
By Dan Burrows Published
-
Stock Market Today: Stocks Edge Higher With Nvidia Earnings in Focus
Nvidia stock gained ground ahead of tomorrow's after-the-close earnings event, while Super Micro Computer got hit by a short seller report.
By Karee Venema Published
-
Stock Market Today: Dow Hits New Record Closing High
The Nasdaq Composite and S&P 500 finished in the red as semiconductor stocks struggled.
By Karee Venema Published