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Legg Mason, Inc. (LM)

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We are downgrading our recommendation on Legg Mason, Inc. (LM) to Underperform from Neutral based on the company's ongoing managerial changes. However, the company's fiscal first-quarter 2013 earnings outpaced the Zacks Consensus Estimate, though a decrease in total revenues and client outflows were the dampeners.

In the near term, assets outflows are expected to remain a significant headwind. The performance of Legg Mason's funds has remained mixed since the peak of financial crisis and its shares did not rebound as compared with its competitors.

Our 6-month target price of $24.00 equates to about 17.4x the Zacks Consensus Estimate for fiscal 2013. Combined with the $0.44 per share annual dividend, this price target implies an expected negative return of 7.7% over that period, which is consistent with our Underperform recommendation on the shares.

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