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Janus Capital Group Inc. (JNS - Analyst Report) reported third-quarter 2013 earnings per share attributable to common shareholders of 17 cents, in line with the Zacks Consensus Estimate. However, results compared favorably with the prior-year quarter earnings of 15 cents.

Top-line growth, increased asset under management (AUM) and reduced operating expenses depict the stability in earnings. However, net outflows were a headwind for the quarter.

Net income stood at $32.6 million compared with $25.1 million in the prior-year quarter.

Performance in Detail

Total revenue surged 4.2% year over year to $217.7 million, primarily due to higher investment management fee revenues, partially offset by negative performance fees.  Moreover, revenues were marginally above the Zacks Consensus Estimate of $217.0 million.

Total operating expenses decreased 1.5% year over year to $158.7 million. The fall came on the back of reduced long-term incentive compensation and lower distribution expenses. Operating margin was 27.1% compared with 22.9% in the prior-year quarter.

Asset Position

As of Sep 30, 2013, Janus Capital reported AUM of $166.7 billion, up from $158.2 billion as of Sep 30, 2012. Moreover, average AUM increased 6.2% on a year-over-year basis to $165.2 billion from $155.5 billion.

The increase in company-wide assets during third-quarter 2013 primarily reflects net market appreciation of $10.3 billion, partially offset by long-term net outflows of $4.2 billion. Fundamental equity long-term net outflows totaled $4.9 billion, while mathematical equity long-term net inflows totaled $0.7 billion. However, fixed income sales were offset by redemptions during the quarter.

Balance Sheet

As of Sep 30, 2013, Janus Capital had stockholders’ equity of $1.5 billion, cash and investments of $792.6 million and outstanding debt of $543.0 million compared with stockholders’ equity of $1.5 billion, cash and investments of $759.9 million and outstanding debt of $549.4 million in the prior quarter. Cash flow from operations during the reported quarter was $78.3 million compared with $67.0 million in the prior quarter.

Capital Deployment Activity

During third-quarter 2013, Janus Capital repurchased 1.07 million shares of its common stock at an average price of $8.99 per share and a total cost of $9.6 million.

Our Viewpoint

Janus Capital has the best-in-class investment boutique with the potential for AUM and revenue along with competitive leverage growth. However, weakness in flows remains a matter of concern.

Though fixed income segment and global operations are showing signs of improvement, the company’s equity-heavy portfolio makes it vulnerable to the equity market. Nevertheless, given its healthy balance sheet, we believe Janus Capital has the potential to perform well in the long run aided by a significant rebound in these markets.

Shares of Janus Capital currently carry a Zacks Rank #2 (Buy). Among other investment managers, Legg Mason Inc. (LM - Analyst Report) is scheduled to report September quarter end results on Oct 25, Ameriprise Financial, Inc. (AMP - Analyst Report) on Oct 29 and Invesco Ltd. (IVZ - Analyst Report) on Oct 31.

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