Franklin Resources (BEN), Janus Capital (JNS), Waddell & Reed Financial (WDR) Goldman Sachs analysts positive on asset managers, but downgrades Waddell & Reed
Goldman Sachs analysts see improving conditions for asset managers in the second half of this year and next year, but see some companies more worthy of investor attention than others. On Monday, Goldman upgraded Franklin Resources Inc. to buy from neutral and Janus Capital Group Inc. to neutral from sell. But Goldman also downgraded Waddell & Reed Financial Inc. to neutral from buy.
Their more positive view on asset managers comes from the expectation that investors will rebalance portfolios driving asset inflows. In addition, new money inflows turned positive in the second quarter, up 1.4%, the highest since 2007. In addition, the analysts said retail investors are turning away from money market funds, which is driving inflows.
They expect positive earnings momentum to continue. Goldman Sachs analysts have said they expect the S&P 500 to reach 1060 by year's end. The S&P was hovering near 1000 on Monday.
The analysts are anticipating higher assets under management from stocks in the third and fourth quarters. They also said they expect industry consolidation, predicting BlackRock Inc. (BLK), Affiliated Managers Group Inc., Franklin Resources Inc., The Blackstone Group (BX) are the most willing and able to buy.
Regions Financial (RF)
Goldman Sachs analysts downgraded Regions Financial Corp. to neutral from buy
Goldman Sachs analysts downgraded Regions Financial Corp. to neutral from buy, and removed it from their "Americas Buy List," a list of preferred stocks. Goldman said the company's credit quality was disappointing in the second quarter and it's likely to be 2010 before it improves while the stock price has gained slightly.
The analysts said the remaining months of this year are likely to be a grind for the company as Regions works through earlier home mortgage issues and current commercial real estate problems. "The good news is that the stress test is fully behind Regions and the company's capital and funding position is now in a much better place," the analysts said.
They said they realize they're downgrading Regions at a still-low valuation, but buying bank stocks at the current levels "has been a coin toss." They maintained their 12-month price target at $4.50.
3M Co. (MMM)
Goldman upgrades to buy. Goldman downgrades ITT (ITT) to neutral
Goldman Sachs analyst Terry Darling said he expects U.S. ISM index to rise toward 50 by October and further embolden investor interest in cyclical exposure. He notes 3M has significant exposure to early cycle auto, consumer electronics markets, where data should be strong in the coming months.
Despite above-average early cycle exposure, margins and balance sheet optionality, Darling says 3M's valuation is closer to the low end of historical range vs. peers. He thinks 3M will beat consensus estimates in the second half on strong cost control and recovering early-cycle end markets. He prefers MMM over ITT shares.
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