Stock Report: Legg Mason Inc (LM)

Stock Report: Legg Mason Inc (LM) - HE LM T 3 28 14

THE HEDGEYE EDGE

A recent speaker’s series call with a leading pension fund consultant relayed that “at funded” U.S. corporate pensions are now de-risking from equities and are shifting asset allocation into fixed income and alternatives. 

 

The biggest exposure to institutional fixed income of the public asset managers is at Legg Mason with 71% of the company’s business within institutional mandates with the majority of that in bonds.

 

Separately we estimate that as the Fed starts to taper and come off of the bond curve that rates will actually decline and not increase because a reduction in quantitative easing will slow growth. This will also benefit leading bond managers.

 

 

TIMESPAN

INTERMEDIATE TERM (TREND) (the next 3 months or more)

With 11% short interest (the second highest in the group) and the lowest ranked stock of the big 6 public asset managers (with only 3 buys in coverage by 18 analysts) even just marginally improved trends should send the stock to the lows 50 per share range.

 

 

LONG-TERM (TAIL) (the next 3 years or less)

Within this pension de-risking theme we estimate that up to $500 billion should come into leading fixed income managers and up to $1 trillion should be redeemed within core S&P 500 institutional equity mandates. If this theme materializes Legg should see a disproportionate amount of inflow versus other managers which would lead to substantial earnings power above Street estimates.

 

We think the company can earn $3.50 next year, 10% above Street estimates, which at an industry multiple would translate into a fair value of $60 for the stock. 

 

  

ONE-YEAR TRAILING CHART

Stock Report: Legg Mason Inc (LM) - HE LM C 3 28 14


People's Bank of China Spins China’s Bad-Loan Data

PBoC Deputy Governor Yi says China's non-performing loan problem has “pretty much stabilized." "Yi is spinning. China’s bad-debt problem remains serious," write Benn Steil and Emma Smith, Council on Foreign Relations.

read more

UnderArmour: 'I Am Much More Bearish Than I Was 3 Hours Ago'

“The consumer has a short memory.” Yes, Plank actually said this," writes Hedgeye Retail analyst Brian McGough. "Last time I heard such arrogance was Ron Johnson."

read more

Buffalo Wild Wings: Complacency & Lack of Leadership (by Howard Penney)

"Buffalo Wild Wings has been plagued by complacency and a continued lack of adequate leadership," writes Hedgeye Restaurants analyst Howard Penney.

read more

Todd Jordan on Las Vegas Sands Earnings

"The quarter actually beat lowered expectations. Overall, the mass segment performed well although base mass lagging is a concern," writes Hedgeye Gaming, Lodging & Leisure analyst Todd Jordan on Las Vegas Sands.

read more

An Update on Defense Spending by Lt. Gen Emo Gardner

"Congress' FY17 omnibus appropriation will fully fund the Pentagon's original budget request plus $15B of its $30B supplemental request," writes Hedgeye Potomac Defense Policy analyst Lt. Gen Emerson "Emo" Gardner USMC Ret.

read more

Got Process? Zero Hedge Sells Fear, Not Truth

Fear sells. Always has. Look no further than Zero Hedge.

read more

REPLAY: Review of $EXAS Earnings Call (A Hedgeye Best Idea Long)

Our Healthcare Team made a monster call to be long EXAS - hear their updated thoughts.

read more

Capital Brief: 5 Things to Watch Right Now In Washington

Here's a quick look at some key issues investors should keep an eye on from Hedgeye's JT Taylor and our team of Washington Policy analysts in D.C.

read more

Premium insight

[UNLOCKED] Today's Daily Trading Ranges

“If I could only have one thing of the many things we have it would be my daily ranges." Hedgeye CEO Keith McCullough said recently.

read more

We'll Say It Again: Leave Your Politics Out of Your Portfolio

If your politics dictates your portfolio positioning, the Democrats and #NeverTrump crowd out there have had a hell of a week.

read more

Cartoon of the Day: 'Biggest Tax Cut Ever'

President Donald Trump's economic team unveiled what he called last week, "the biggest tax cut we’ve ever had.” Before you get too excited about that hang on a sec. "Trump Tax Reform ain’t gettin’ done anytime soon," Hedgeye CEO Keith McCullough wrote in today's Early Look.

read more

Neurofinance: The Psychology Behind When To Sell A Bull Market

"Most momentum investors stay invested too long, under-reacting and holding tight after truly bad news finally arrives to break the trend," writes MarketPsych's Richard Peterson.

read more