We have reiterated our recommendation on Janus Capital Group Inc. (JNS) at Neutral following the company’s earnings release. Our decision is based on the company’s fundamentals and the current economic scenario.
Second Quarter Performance
Janus Capital’s earnings per share came in at 17 cents, outpacing the Zacks Consensus Estimate of 14 cents, primarily driven by better-than-expected revenues and a moderation in outflows. This also came in significantly higher than the 10 cents per share reported in the year-ago quarter but was flat sequentially. Net income was $30.2 million as compared with $31.3 million in the prior quarter and $15.8 million in the year-ago quarter.
Janus Capital’s total revenues increased 1% sequentially and 24.5% year over year to $249.3 million, surpassing the Zacks Consensus Estimate of $248.0 million. The increase reflects growth in investment management fees and shareowner servicing fees, partially offset by decreased performance fees.
The quarter experienced increased market volatility and investors shifting away from actively managed equities to fixed income products. As a result, Janus Capital’s total assets under management (AUM) decreased to $147.2 billion from $165.5 billion as of March 31, 2010.
Janus Capital has the best-in-class investment boutique with the potential to drive AUM and revenue growth along with its competitive leverage. However, a weak demand and higher expenses due to the ongoing market volatility demand caution on the near-term growth outlook.
While initiatives to strengthen its business and broaden its scope are welcome, upfront costs for such initiatives cannot be ignored. Hence, without any significant growth in revenues and AUM, margins may remain pressured. Though results in the INTECH unit are improving, headwinds persist and the company’s equity-heavy portfolio exposes it to equity market volatility.
Janus Capital currently carries a Zacks #3 Rank (Hold), implying no clear directional pressure on the shares over the next one to three months. The stock also has a Neutral recommendation from us in the long term.