Earnings Preview: Legg Mason

Jul.20.09 | About: Legg Mason (LM)

Legg Mason (NYSE:LM) is expected to report fiscal first quarter earnings after the market close on Monday, July 20, with a conference call scheduled for 5:00 pm.


Analysts are looking for EPS of 22c on revenue of $612.34M. The consensus range for EPS is 14c to 29c, while the consensus range for revenue is $601.83M to $628.1M, according to First Call.

Analyst Views

Legg Mason last week announced an offer to exchange slightly over $1B of convertible securities for 0.8881 of a common share and $6.25 in cash per unit of the convertible securities. Legg Mason said it expects the move to increase its EPS in FY10 and FY11. After Legg Mason's announcement, the ratings agency downgraded the company's senior debt rating to BBB+ from A-. Fitch warned that the company's core earnings power has "weakened considerably" over the last few quarters, since market value losses and client values have reduced its assets under management. On the other hand, Fitch thinks that the exchange offer will significantly reduce some of the pressure on Legg Mason from its debt service, and the ratings agency gave the company a Stable Outlook. The firm believes that Legg still has several strengths, including substantial scale in the asset management business and the diversity of its assets under management.

On June 16, FBR Capital warned that Legg could lose $25B-$30B of managed sweep funds from Citigroup as a result of the joint Smith Barney venture between Morgan Stanley (NYSE:MS) and Citigroup (NYSE:C). FBR Capital is worried about what it sees as "significant outflows" from Legg Mason and it reiterates an Underperform rating on the stock.

Late last month there were some rumors that activist investor Nelson Peltz had increased his stake in Legg Mason. However, the Wall Street Journal subsequently reported that Peltz had not raised his investment in the company.