Analysts Bullish on Asset Managers’ Earnings, Margins

Expecting strong third-quarter earnings reports from asset management firms due to the market’s rally, analysts are upgrading their outlook on the companies.

“This is the second quarter in a row of outsized equity and fixed income gains, likely to result in another hike in operating margins, though [changes] in compensation may temper [that] somewhat,” according to a Bank of America-Merrill Lynch research report.

Indeed, Janus Capital is up 81% year to date, Waddell & Reed is up 82% and Calamos Asset Management is up 78%. Even given these tremendous gains, the Merrill report said, “Janus has further upside potential in our view, based on very strong investment performance and strong inflows as asset growth, estimated at 14%, in the third quarter.”

A separate report from J.P. Morgan said, “We continue to like many of the asset managers despite the doubling of many stock prices since the March market low. We are raising numbers for all of the asset managers that we follow given the magnitude of the market movement.”

The J.P. Morgan analysts are especially bullish on Franklin Resources and Invesco due to their international holdings, fund performance and sales.