Keefe, Bruyette & Woods Previews Several Asset Managers

October 5, 2009 7:28 AM EDT

Keefe, Bruyette & Woods Previews Several Asset Managers

Keefe analyst maintains an Outperform rating on Affiliated Managers Group (NYSE: AMG) - We are raising our 2009, 2010, and 2011 Cash EPS estimates mainly to reflect stronger than previously forecast investment returns. We also raised our price target to $74 (from $72) to reflect our higher earnings forecast. Our new price target is 14.1x our new 2010 Cash EPS estimate of $5.25.

Maintains a Market Perform rating on AllianceBernstein (NYSE: AB) - We are raising our 2009, 2010, and 2011 EPU forecasts and price target to reflect higher than previously forecast AUM. Our $27 price target (from $20) largely reflects our higher EPU forecast and is 15.9x our new 2010 estimate of $1.70. We moderated our forecast for outflows as recent improvements in relative performance in value equities and better fixed income flows should somewhat offset pressure on equity flows. That said, we expect overall flows to remain negative, mainly in the institutional business.

Maintains a Market Perform rating on BlackRock (NYSE: BLK) - We are raising our 2009 and 2010 EPS estimates to reflect higher AUM, both at BLK and Barclays Global Investors (BGI), as well as somewhat higher margins. We expect net flows to remain positive in 3Q, although flows to cash management products were likely negative in 3Q. Given our higher 2010 EPS estimate, we are raising our price target to $200 from $182.

Maintains a Market Perform rating on Calamos Investment Management (Nasdaq: CLMS) - We raised our 2009, 2010, and 2011 EPS estimates to reflect the increase in our AUM forecast and somewhat better operating margins. However, we are leaving our $14 price target unchanged, which is 16.9x our 2010 EPS estimate of $0.83. Our prior forecast had already reflected investment performance through August, and thus the change in our EPS forecast was relatively modest.

Maintains a Market Perform on Eaton Vance (NYSE: EV) - We are raising our 2009, 2010, and 2011 EPS estimates to reflect our higher AUM forecast, as well as somewhat better operating margins going forward. Our forecast for organic growth was relatively unchanged. As a result of somewhat better revenue growth we increased our forecast for margin improvement as well. Our EPS increases were fairly modest as EV's estimates already incorporated solid investment returns through July. We are raising our price target to $31 (from $28) to reflect our higher EPS forecasts. Our price target is a still healthy 18.5x our calendar 2010 EPS estimate of $1.68.

Maintains a Market Perform rating on Federated Investors (NYSE: FII) - In light of FII's heavy weighting toward money funds, our EPS estimates are little changed despite a higher equity AUM forecast. Looking ahead, our EPS forecast reflects our expectation for modest outflows from money funds, as well as additional fee waivers, offset somewhat by what we expect should be positive flows into long-term products, mainly fixed income. The relatively flat earnings from 2009 to 2010 reflects our view that declining money fund AUM in 2009, fee waivers, and flat money fund AUM in 2010 will largely offset
improvements in equity and fixed income AUM...We are leaving our $27 price target unchanged.

Maintains an Outperform rating on Franklin Resources (BEN) - We are raising our 2009, 2010, and 2011 EPS forecast to reflect higher than previously forecast AUM, revenue, and margins. Our EPS increase is more modest relative to some peers as we had previously increased our EPS forecast to reflect higher AUM as of the middle of the quarter. Also, while our forecast for net flows was little changed, we expect flows remained solid, driven predominately by flows into fixed income and hybrid products. In order to reflect our higher EPS estimates, we are raising our price target to $114 (from $110), which is 19.5x our calendar 2010 EPS estimate of $5.84.

Maintains a Market Perform rating on Invesco Ltd. (NYSE: IVZ) - We are raising our 2009, 2010 and 2011 EPS estimates to reflect slightly higher than previously forecast AUM. The increases in IVZ's EPS forecasts are relatively more modest than some peers as we had previously adjusted estimates to reflect August ending AUM. While there was little change in our flow forecast, the greater levels of revenue growth did have a positive impact on our margin forecast. We are also raising our price target to $25 (from $24) to reflect our higher EPS forecast. Our price target is 19.2x our 2010 EPS estimate of $1.30.

Maintains a Market Perform on Janus Capital (NYSE: JNS) - We sharply raised our 2009, 2010, and 2011 EPS forecasts mainly to reflect strong investment returns in the quarter. We also slightly raised our net flow forecast and as a result of the sharply higher revenue growth, assume a greater degree of margin improvement than we had previously. We are also raising our price target to $15.50 (from $13), to reflect our higher EPS forecast. Our new price target is 17.8x our 2010 EPS estimate of $0.87.

Maintains a Market Perform rating on Legg Mason (NYSE: LM) - We sharply increased our fiscal 2010 and 2011 EPS forecasts to reflect strong investment performance and higher AUM. We also moderated our forecast for net outflows and as a result of our higher revenue forecast, assume a greater level of margin improvement than we did previously. We also raised our price target to $34 from $29. This mainly reflects the increase in our EPS forecast and is 19.5x our calendar 2010 forecast of $1.74.

Maintains a Market Perform on Pzena Investment Management (NYSE: PZN) - We are raising our 2010 and 2011 EPS estimates for PZN mainly to reflect higher AUM, better revenue growth, and somewhat better than previously forecast margin improvement. Our flow forecast is little changed, and we believe that PZN could be generating modestly positive flows, mainly into its separately managed account businesses. With our higher EPS estimate, we are raising our price target to $9.00 from $8.75. Our price target is 17.3x our 2010 EPS estimate of $0.52.

Maintains a Market Perform on T. Rowe Price (Nasdaq: TROW) - We are raising our EPS estimates for TROW to reflect the sharp increase in AUM compared to our prior forecast. Also, while our flow forecast was relatively unchanged, the higher levels of revenue growth also resulted in a somewhat higher than previously forecast margin. While we expect net flows to remain solidly positive, as we noted in our just published research report titled, Performance Bubbles: A Look At Risk-Adjusted Returns, dated October 5, 2009, TROW's 3-year relative risk adjusted returns, while still attractive, have deteriorated somewhat over the past year. We are also raising our price target to $50 from $46 to reflect our higher EPS estimate. Our price target is a still healthy 21.3x our 2010 EPS estimate of $2.35. We think TROW remains a premier asset manager that warrants a premium valuation and should continue to generate organic growth and has a pristine balance sheet. That said, given the modest upside to our price target, we are maintaining our Market Perform rating.

Maintains a Market Perform on Waddell & Reed (NYSE: WDR) - We are raising our 2009, 2010, and 2011 EPS estimates to reflect stronger than forecast investment performance, as well as somewhat better than previously forecast margin improvement. Our forecast for net flows was relatively unchanged. Due to our higher EPS estimates, we are raising our price target to $31 (from $28). Our price target is 18.2x our 2010 EPS estimate of $1.70...However, with a limited total return to our price target, we maintain our Market Perform rating.

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• Keefe, Bruyette & Woods
• Janus Capital
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