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Neutral on Janus Capital

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On Jun 17, 2013, we reiterated our long-term recommendation on Janus Capital Group Inc. 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 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-quarter 2013, the company reinvested $77 million in net new seed capital and returned $4 million of capital 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 2013, the company is focused on delivering strong long-term investment performance with 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 first-quarter 2013 earnings per share of 15 cents, lagging the Zacks Consensus Estimate by a penny. Moreover, results compared unfavorably with the prior-year quarter earnings of 17 cents per share. Lower-than-expected results were due to declining revenues and increased operating expenses.

Following Janus Capital’s first-quarter 2013 results, the Zacks Consensus Estimate for 2013 and 2014 remained stable at 65 cents and 77 cents per share, over the last 60 days. Hence, the company carries a Zacks Rank #3 (Hold).

Some Major Companies to Consider

Some better performing investment managers that are worth considering include Artisan Partners Asset Management Inc. (APAM - Free Report) , Noah Holdings Limited (NOAH - Free Report) and Virtus Investment Partners, Inc. (VRTS - Free Report) . All 3 companies carry a Zacks Rank #1 (Strong Buy).

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