Global asset management company, Legg Mason Inc. (NYSE: LM) will report its Q3 earnings on January 26, 2011. In the last four quarters ending September 2010, the company's reported EPS had a mixed consensus with analysts' estimates. For the quarter ended March 2010 and September 2010, it exceeded by margin of 11.40 percent and 51.50 percent, respectively. Contrarily, for the quarters ended December 2009 and June 2010, the company's reported EPS missed analysts' estimates by margins of 9.70 percent and 3.20 percent, respectively.
Acting through its subsidiaries, Legg Mason provides investment management and related services to institutional and individual clients, company-sponsored mutual funds and other pooled investment vehicles. The company operates its business through two divisions: Americas and International. Its investment advisory services include discretionary and non-discretionary management of separate investment accounts in numerous investment styles for institutional and individual investors.
Q2 results beat analysts' consensus estimates
For the second quarter ended September 2010, Legg Mason reported revenues of $674.8 million, up 2.25 percent from revenues of $659.9 million in the second quarter FY 2010. The company reported a net income of $75.3 million, or $0.50 per diluted share, compared with $45.8 million, or $0.30 per diluted share in the second quarter of FY 2010. This compares to $47.9 million, or $0.30 per diluted share, in the previous quarter. Operating expenses of $586.9 million were up 3% from $571.4 million in the first quarter for FY 2011. The company's assets under management declined to $671.8 billion in the second quarter, compared to $673.5 billion at the end of first quarter FY 2011.
Share repurchase and dividend hike increased share prices
In the third quarter, the company's board of directors declared a quarterly common stock cash dividend in the amount of $0.06 per share, up from $0.04 per share declared in the first quarter FY 2011. On May 10, 2010, the company's board of directors replaced its previously announced 5 million share repurchase program with a new $1 billion program. On May24, the company entered into agreements to repurchase $300 million of its common stock in an accelerated share repurchase transaction, using its available cash. In the second quarter of FY 2011, the company completed its $300 million share repurchase arrangement which resulted in an additional 99 thousand shares being retired. As of September 30 2010, Legg Mason has repurchased and retired 11.4 million shares of common stock over the last two quarters.
Analysts expect the company to continue its strong performance
For the third quarter ended December 31, 2010, analysts' EPS estimates range from a low of $0.32 per share to a high of $0.58 per share, compared to the consensus estimate of $0.43 per share or $0.28 per share earned in the year ago quarter. Analysts' revenue estimates for the third quarter range from a low of $677.30 million to a high of $711.06 million, compared to a consensus estimate of $696.91 million or $690.48 million reported in the same quarter a year ago. For the quarter ended December 31, 2010, the consensus EPS forecast has decreased from $0.45 per share estimated 7 days ago, to current estimate of $0.43 per share. In the last 30 days, EPS estimates have been revised 5 times.
The company faces strong competition from companies like BlackRock Inc. (NYSE: BLK) and Charles Schwab Corp. (NASDAQ: SCHW). In the trailing 12 months, BlackRock has reported earnings of $8.93 per share, on revenues of $7.66 billion. Charles Schwab reported earnings of $0.42 per share, on revenues of $4.11 billion. On the other hand, Legg Mason has reported earnings of $1.47 per share, on revenues of $2.61 billion.
In the trailing twelve months, Legg Mason has a P/E ratio of 23.79, higher than industry's P/E of 16.66. The P/S ratio of the company is at 2.05, lower than industry's P/S of 3.12. Legg Mason has a quarterly revenue growth of 3 percent, compared to industry's quarterly revenue growth of 22.90 percent. The trailing 12 months dividend yield of the company is at 0.50 percent.
In the last 52 weeks, the stock has been trading in the range of $24 and $37.72. In the last one year, the stock has gained 14 percent to settle at $34.88 on January 19, 2011. Based on the financials, I forecast EPS at $1.56 per share for FY 2011 and $1.80 per share for FY 2012. Based on the EPS estimates and key financials of the company, I see a one year price target of $38.50.
