Analysts upgrade fund houses as markets rise
Analysts at investment bank Keefe, Bruyette & Woods have upgraded earnings estimates for some of the largest asset managers in the US in response to a sharp rise in share prices across the funds industry that has left some stocks trading at “bull market valuations”.
In a report released today, analysts Robert Lee and Larry Hedden upgraded future earnings estimates and share price targets for US-listed asset managers including Federated Investors, Janus Capital and T Rowe Price.
They wrote: "Given the strong rebound in equity and fixed-income markets quarter-to-date, we are taking the opportunity to raise our earnings per share estimates and price targets for several traditional asset managers."
Affiliated Managers Group received special attention, as the analysts boosted their rating for the company from market perform to outperform. They cited improving flows, and a strong balance sheet that could let it make a significant acquisition.
However, the analysts added that the market rebound has led to many asset managers' share prices “trading at bull market valuations”, warning that “expectations for many asset manager stocks appear to be high at this point".
Lee and Hedden wrote: "While asset managers can continue to perform well assuming the equity market rally continues, we think current valuations leave little room for error and investors in most asset management stocks, at this point, should expect little in the way of multiple expansion and we think are relying mainly on additional earnings expansion for outperformance.”
The news comes after the same analysts warned in April that fund managers’ share prices had moved “too far, too quickly” when the markets turned in early March.
In a separate report, also published today, Lee and Hedden raised Legg Mason's earnings and share price estimates after performance in some of its flagship strategies "rebounded sharply".
The company's flagship value strategy, run by veteran manager Bill Miller, was up 11% over the first five months of the year, while the S&P 500 index which fell 3% over the same period, according to Legg Mason's figures.
--write to pcraig@efinancialnews.com
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