Citi analysts say Legg Mason no longer a buy
NEW YORK (AP) — Legg Mason's stock surged this week, following news that CEO Mark Fetting will soon step down. But the rally could fizzle out soon, according to analysts at Citigroup.
In a note out Friday, Citi analyst William Katz warned that Legg Mason's stock could spend months in a "holding pattern," while the company hunts for a new CEO. He also expects the money management firm will also have a tough time getting investors to put more money in Legg Mason's stock and bond funds.
As a result, Katz removed his "buy" rating on the stock, lowering it to "neutral." His analyst team cut its price target for Legg Mason Inc. by $2 to $28 and trimmed its earnings forecast.
"While a new CEO tends to give asset manager stocks a boost, we believe it is a bit early to play that theme," Katz said. Finding a replacement for Fetting could take between three and five months, he wrote. Until that happens, Legg Mason is unlikely to make any large-scale changes, such as cutting expenses or putting parts of its business up for sale.
Baltimore-based Legg Mason reported Thursday that its total assets under management edged up a fraction to $639 billion as of Aug. 31, from $635.8 billion in July. Stock funds increased 1 percent to $151 billion. Citi's analysts called the results "disappointing."
In July, Legg Mason posted its first quarterly loss in three years as it paid charges to lighten its debt and investment fees fell. Its assets under management are far below levels reached before the 2008 financial crisis. In late 2007, Legg Mason managed about $1 trillion.
Legg Mason's stock gained about 4 percent this week. The company said Tuesday that Fetting, the CEO, will step down Oct. 1.
The stock added 32 cents to $26.91 in Friday afternoon trading. That 1 percent increase was better than the 0.3 percent rise for the Standard & Poor's 500 index.