Thursday, January 13, 2011

Legg Mason's (NYSE:LM) Slow Asset Growth Makes Valuation Dubious

The valuation of Legg Mason (NYSE:LM) appears high, says Ticonderoga, citing their slow asset growth in comparison with the rest of the industry.

Ticonderoga said, "Total AUM came in at $671.8 billion, up 0.6% from last month. This was $3 billion better than our estimate. It looks like fixed income AUM came in better by about $2-3 billion. For the quarter, we estimate total net outflows from long-term products of $10 billion compared to $12.4 billion last quarter. Total AUM was down 0.3% from the end of September 2010.

"LM trades at 21x our calendar 2011 estimate, which is adjusted for restructuring charges and cost synergies. This represents a 23% premium to the industry. We continue to struggle with the valuation considering how drastically LM asset growth lags the industry and the continued lack of investment toward growth."

Ticonderoga maintains a "Sell" rating on Legg Mason, which closed Wednesday at $35.68, gaining $0.47, or 1.33 percent. Ticonderoga has a price target of $27 on them.

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