Surprised Analysts Like Legg Mason But Wonder What's Next
Analysts are reacting positively to this morning's news of CEO Mark Fetting's impending departure from Legg Mason [profile]. Yet they disagree on what comes next for the beleaguered, Baltimore-based mutual fund shop.
In a note this morning, Citi analyst Bill Katz told investors that he expects Legg's stock "to react favorably," maintain a "contrarian Buy" position with a $30 share price target. (Legg opened at under $26.)
"We believe the decision is orderly and not reflective of any material negative news brewing," Katz wrote.
"Although the timing of any such announcement is a surprise, the fact that it happened is not," agreed Stifel Nicolaus analysts Jeff Hopson and Marc Torrente in their morning note to investors. "There is ultimately some upside here � Our guess is the stock will open higher."
Another asset management industry analyst told MFWire that he continues to think that Legg is "undervalued."
"The shares have lagged, despite that they've made some improvements in performance," the analyst said. "They've finished the restructuring."
The Stifel analysts and the off-the-record analyst all think that Fetting's departure paves the way for dealmaking.
"It's possible they could do a deal similar to what Janus did [with Dai-ichi]," the off-the-record analyst said.
"We believe this increases the odds of a corporate event; more likely to be sold in pieces rather than as a whole," Hopson and Torrente wrote. "LM has some attractive properties in Western, Royce, Permal, and Brandywine, but we do not think that there is a buyer who would be interested in all of these."
Citi's Katz, on the other hand, dismisses the idea that a sale or breakup is imminent.
"While we can not rule out as an end game outcome, we nonetheless, do not see LM as necessarily 'in play' on this news," Katz wrote. "We do not believe LM will go the way of United Asset Management � the first manager of manager in this space in the 1990s and 2000s, which was ultimately sold to Old Mutual and sold for parts, but clearly all discussions are likely to be revisited."