Legg Mason's June AUM Falls - Analyst Blog

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Baltimore-based Legg Mason Inc. (LM) reported a drop in its assets under management (AUM) as of Jun 30, 2013 when compared with the prior quarter, thereby reflecting a reduction in foreign exchange AUM. Preliminary month-end AUM came in at $644.5 billion, down 3.0% from the prior quarter. Equity AUM rose while fixed income and liquid AUM declined.

Legg Mason's equity AUM as of June-end rose 1.6% from the prior quarter to $164.4 billion, while fixed income AUM fell 3.9% to $351.0 billion from the prior quarter figure.

The fall in fixed income AUM, partially offset by increased equity AUM resulted in a long-term AUM of $515.4 billion, reflecting a 2.2% decrease against the prior quarter. Liquid assets, which are convertible to cash, fell about 6.2% sequentially to $129.1 billion.

We believe that Legg Mason has the potential to outperform its peers in the long run, given its diversified product mix and leverage in the changing market demography. Moreover, a significant rebound in equity markets would act as a catalyst. However, in the near term, asset outflows will remain a significant headwind. However, owing to the restructuring initiatives and cost-cutting measures, we expect operating efficiencies to improve for Legg Mason and dividend payments to continue boosting investors' confidence in the stock.

Other Stocks to Consider

Legg Mason is scheduled to announce fiscal first-quarter 2014 results on Jul 25. The earnings ESP (Read: Zacks Earnings ESP: A Better Method) for the quarter is -2.50%. This, along with its Zacks Rank #5 (Strong Sell), reduces the company's chances of a positive earnings surprise.

Though we are not optimistic about Legg Mason's earnings, there are many financial companies that are likely to beat earnings this quarter. Here are some stocks that are worth a look as our model shows them to have the right combi! nation of elements to post an earnings beat this quarter:

Prosperity Bancshares Inc. (PB) with earnings ESP of 1.14% and a Zacks Rank #2 (Buy).

First Horizon National Corporation (FHN) with earnings ESP of 5.26% and a Zacks Rank #3 (Hold).

Fifth Third Bancorp (FITB) with earnings ESP of 2.27% and a Zacks Rank #3.