Legg Mason (LM - Free Report) is scheduled to report fourth-quarter fiscal 2019 (ended Mar 31) results on May 13, after the market closes. Both earnings and revenues are projected to decline year over year.
In the last reported quarter, the company delivered a positive earnings surprise of 5.8%. However, on a year-over-year basis, fall in revenues, resulting from lower investment advisory fees, remained a major drag. Further, elevated expenses and lower assets under management (AUM) were negatives.
Nevertheless, Legg Mason has an impressive earnings surprise history. Its earnings surpassed estimates in three of the trailing four quarters, the average positive surprise being 7.2%.
With a stellar earnings record, the company’s price performance seems encouraging. For the three-month period ended Mar 31, 2019, its shares have gained 7.3%.
Now, before we take a look at what our quantitative model predicts, let’s discuss the factors that are likely to impact fiscal fourth-quarter results.
Factors at Play
Strong Markets: Performance of equity markets remained impressive during the January-March quarter. The S&P 500 Index increased nearly 7.3% year over year and 13.1% sequentially in the quarter. Moreover, the index measuring international equity performance — the MSCI EAFE — remained stable year over year and climbed 9.6% sequentially. This is anticipated to likely drive the Baltimore-based asset manager’s results to a large extent.
AUM Might Witness Increase: The asset manager will likely reflect higher AUM on expected overall inflows due to solid markets. Notably, in the first two months of the quarter, the company witnessed equity net inflows, which remains a tailwind.
Revenues Likely to Rise: Higher AUM during the quarter is likely to drive Legg Mason’s performance fees. Non-pass through performance fees are projected at $5-$10 million for the to-be-reported quarter. Also, pass-through performance fees of Clarion are anticipated to add about $10 million to total GAAP revenues.
Costs Might Remain Under Control: With a rise in AUM, distribution and servicing expenses are likely to flare up as well. However, management predicts compensation ratio to remain in the range of 54-56%, underlining lower seasonal compensation impacts.
Here is what our quantitative model predicts:
Our proven model indicates that chances of Legg Mason beating the Zacks Consensus Estimate are high as it has the right combination of the two key ingredients — positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold).
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Earnings ESP: The Earnings ESP for Legg Mason is currently pegged at +4.41%.
Zacks Rank: The combination of Legg Mason’s Zacks Rank #2 and a positive ESP makes us confident of an earnings beat.
The Zacks Consensus Estimate for the March-end quarter’s earnings remained unchanged over the last seven days, calling for a year-over-year decline of 39.5%.
Other Stocks to Consider
T. Rowe Price Group, Inc. (TROW - Free Report) has been witnessing upward estimate revisions, for the past 30 days. Moreover, this Zacks #1 Ranked stock has rallied more than 10%, in the past three months. You can see the complete list of today’s Zacks #1 Rank stocks here.
Artisan Partners Asset Management Inc. (APAM - Free Report) has been witnessing upward estimate revisions, for the past 30 days. Also, the company’s shares have gained nearly 6.9% in three months’ time. At present, it sports a Zacks Rank of 1.
Cohen & Steers Inc (CNS - Free Report) has been witnessing upward estimate revisions for the past 30 days. Additionally, the stock has jumped around 32.5% over the past three months. It currently flaunts a Zacks Rank #1.
Biggest Tech Breakthrough in a Generation
Be among the early investors in the new type of device that experts say could impact society as much as the discovery of electricity. Current technology will soon be outdated and replaced by these new devices. In the process, it’s expected to create 22 million jobs and generate $12.3 trillion in activity.
A select few stocks could skyrocket the most as rollout accelerates for this new tech. Early investors could see gains similar to buying Microsoft in the 1990s. Zacks’ just-released special report reveals 7 stocks to watch. The report is only available for a limited time.
See 7 breakthrough stocks now>>