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Analyst Blog

On Mar 20, 2013, we reiterated 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 remains a matter of concern.

Why Neutral?

Janus Capital reported fourth-quarter 2012 earnings per share attributable to common shareholders of 19 cents, beating the Zacks Consensus Estimate by a sliver. Moreover, results compared favorably with prior-quarter earnings of 15 cents per share. Higher top-line growth and decreased operating expenses, reflecting better expense management were the positives for the quarter.

Janus Capital has taken several initiatives to strengthen its businesses. The company is currently focused on aggrandizing its fixed income business including trading and investment. We expect the company’s strategic efforts to lead to such strong outcomes, which have crossed $25 billion in assets under management for the first time in the company's 40-year history in 2012, up 28% from 2011. This, in turn is expected to aid top-line expansion in the upcoming quarters.

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.

Following Janus Capital’s fourth-quarter 2012 results, the Zacks Consensus Estimate for 2013 increased 3.3% to 63 cents per share owing to the upward movement of 7 out of 11 estimates, over the last 60 days. Moreover, the Zacks Consensus Estimate for 2014 has moved north by 1.4% to 75 cents with 3 of 11 upward revisions over the same time frame. Currently, the company retains a Zacks Rank #3 (Hold).

Other Major Companies to Consider

Besides Janus Capital, other investment managers that are worth considering include Apollo Global Management, LLC (APO - Snapshot Report), Lazard Ltd. (LAZ - Analyst Report) and Virtus Investment Partners, Inc. (VRTS - Snapshot Report). All the companies retain a Zacks Rank #1 (Strong Buy).

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