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On Wednesday, Baltimore-based Legg Mason Inc. (LM - Analyst Report) reported a rise in its assets under management (AUM) as of September 2012, compared with the prior quarter, following resurgence from the last three months.

Preliminary quarter-end AUM came in at $650.7 billion, up 1.8% compared with the June quarter. Equity AUM, Fixed income AUM and liquidity AUM recorded augmentations in the quarter under review.

Legg Mason’s equity AUM as of September 2012 inched up 1.5% from the June quarter to $153.4 billion while fixed income AUM climbed 2.4% sequentially to $369.4 billion.

The upside in equity AUM and fixed income AUM resulted in long-term AUM of $522.8 billion, reflecting a 2.2% rise against the prior quarter. Moreover, liquid assets, which are convertible into cash, ascended 6.5% to $127.9 billion from $120.1 billion as of June 2012.

Peer Performance

One of Legg Mason’s peers, Invesco Ltd. (IVZ - Analyst Report) announced a 2.0% rise in its preliminary month-end AUM for September 2012. The company’s AUM for the reported month was $683.0 billion compared with $669.7 billion at the end of August.

Another peer - Franklin Resources Inc. (BEN - Analyst Report) - declared preliminary AUM of $749.9 billion by its subsidiaries for the month of September 2012. The company’s results witnessed a rise of 2.6% from $731.0 billion as of August 31, 2012. Moreover, it increased 13.6% from $659.9 billion as of September 30, 2011.

Our Viewpoint

We believe Legg Mason has the potential to outperform its peers in the long run, given its diversified product mix and leverage to the changing market demography. However, in the near term, assets outflows will remain a significant headwind. Yet, owing to the restructuring initiatives and the cost-cutting measures, we expect operating efficiencies to improve and dividend payments to continue to inspire investors’ confidence in the stock.

Legg Mason currently retains a Zacks #3 Rank, which translates into a short-term Hold rating.

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