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Analyst Blog

On Sep 13, 2013, we maintained our long-term recommendation on Janus Capital Group Inc. (JNS - Analyst Report) at Neutral, based on the company’s best-in-class investment boutique with the potential for assets under management (AUM) and revenue along with competitive leverage growth. However, weakness in flows and a persistent low interest-rate environment remain concerns.

Why Neutral?

We view Janus Capital as a sound asset for yield-seeking investors. The company’s board of directors increased its regular quarterly cash dividend by 17% in Apr 2013. Notably, during first-half 2013, the company repurchased $12.6 million worth of common stock and paid $13.3 million as dividends to shareholders.

In addition to enhancing its organic growth, Janus Capital is focusing on reducing expenses and boosting both fixed and discretionary cost savings to improve its operating leverage. Looking forward to second-half 2013, the company is focused on delivering strong long-term investment performance by controlling expenses and continuing to invest in the business for long-term growth.

However, at the current level, the asset management business is under cyclical and secular pressures along with ongoing margin pressures, many of which have been aggravated by the financial crisis. These pressures include volatile markets and new regulatory compliances. Though Janus Capital remains well positioned over the long term, given short-term performance hindrances and macro headwinds, a limited upside is expected in the near term.

Janus Capital reported second-quarter 2013 earnings per share of 14 cents, lagging the Zacks Consensus Estimate by 2 cents. Moreover, results compared unfavorably with the prior-quarter earnings of 19 cents. Decreased AUM, aided by net outflows was a headwind for the quarter.

Over the last 30 days, the Zacks Consensus Estimate for 2013 remained stable at 60 cents per share, while it decreased 1.4% to 69 cents per share for 2014. Hence, the company carries a Zacks Rank #3 (Hold).

Some Major Companies to Consider

Some better performing investment managers that are worth considering include Affiliated Managers Group Inc. (AMG - Analyst Report), Noah Holdings Limited (NOAH - Snapshot Report) and Virtus Investment Partners, Inc. (VRTS - Snapshot Report). All 3 companies carry a Zacks Rank #2 (Buy).

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