Financial Services Stocks

Legg Mason Inc Valuation – June 2016 $LM

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Companies Benjamin Graham Would Invest In Today – June 2016.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Legg Mason Inc (LM) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Legg Mason, Inc. is a holding company. The Company and its subsidiaries are principally engaged in providing asset management and related financial services to individuals, institutions, corporations and municipalities. The Company operates through Global Asset Management segment. Global Asset Management provides investment advisory services to institutional and individual clients and to the Company-sponsored investment funds. The Company, through its subsidiaries, provides investment management and related services to institutional and individual clients, Company-sponsored investment funds and retail separately managed account programs. It offers its products and services directly and through various financial intermediaries. It has operations principally in the United States and the United Kingdom and also has offices in Australia, Bahamas, Brazil, Canada, Chile, China, Dubai, France, Germany, Italy, Japan, Luxembourg, Poland, Singapore, Spain, Switzerland and Taiwan.


To read the details of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.

Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.


Downloadable PDF version of this valuation:

ModernGraham Valuation of LM – June 2016

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $3,197,774,843 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.83 Pass
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -135.61% Fail
6. Moderate PEmg Ratio PEmg < 20 25.75 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 0.75 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 2.83 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.13 Fail
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

LM value chart June 2016

EPSmg $1.15
MG Growth Estimate 15.00%
MG Value $44.10
Opinion Undervalued
MG Grade C+
MG Value based on 3% Growth $16.61
MG Value based on 0% Growth $9.74
Market Implied Growth Rate 8.62%
Current Price $29.49
% of Intrinsic Value 66.88%

Legg Mason Inc does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability or growth over the last ten years, and the high PEmg ratio. The Enterprising Investor has concerns regarding the level of debt relative to the net current assets, and the lack of earnings stability over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $-0.89 in 2013 to an estimated $1.15 for 2017. This level of demonstrated earnings growth outpaces the market’s implied estimate of 8.62% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.

Legg Mason Inc receives an average overall rating in the ModernGraham grading system, scoring a C+.

Stage 3: Information for Further Research

LM charts June 2016

Net Current Asset Value (NCAV) -$8.58
Graham Number $42.20
PEmg 25.75
Current Ratio 2.83
PB Ratio 0.75
Current Dividend $0.80
Dividend Yield 2.71%
Number of Consecutive Years of Dividend Growth 7


Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2016
Total Current Assets $2,385,128,000
Total Current Liabilities $841,553,000
Long-Term Debt $1,740,985,000
Total Assets $7,520,446,000
Intangible Assets $4,626,001,000
Total Liabilities $3,306,883,000
Shares Outstanding (Diluted Average) 107,406,000

Earnings Per Share History

Next Fiscal Year Estimate $2.01
Mar2016 -$0.25
Mar2015 $2.04
Mar2014 $2.33
Mar2013 -$2.65
Mar2012 $1.54
Mar2011 $1.63
Mar2010 $1.32
Mar2009 -$13.85
Mar2008 $1.86
Mar2007 $4.48
Mar2006 $8.80
Mar2005 $3.53
Mar2004 $2.71
Mar2003 $1.85
Mar2002 $1.49
Mar2001 $1.53
Mar2000 $1.55
Mar1999 $1.03
Mar1998 $0.88
Mar1997 $0.74

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $1.15
Mar2016 $0.68
Mar2015 $1.09
Mar2014 $0.68
Mar2013 -$0.89
Mar2012 -$0.51
Mar2011 -$1.33
Mar2010 -$1.70
Mar2009 -$1.82
Mar2008 $4.23
Mar2007 $5.03
Mar2006 $4.76
Mar2005 $2.57
Mar2004 $2.00
Mar2003 $1.60
Mar2002 $1.41
Mar2001 $1.30

Recommended Reading:

Other ModernGraham posts about the company

Stocks Trading Below Their Graham Number – May 2016
Stocks Trading Below Their Graham Number – February 2016
10 Companies Benjamin Graham Would Invest In Today – February 2016
13 Best Stocks For Value Investors This Week – 12/12/15
Legg Mason Inc Valuation – December 2015 Update $LM

Other ModernGraham posts about related companies

Morgan Stanley Valuation – June 2016 $MS
BlackRock Inc Valuation – June 2016 $BLK
Goldman Sachs Group Inc Valuation – June 2016 $GS
Ameriprise Financial Inc Valuation – June 2016 $AMP
American Express Company Valuation – May 2016 $AXP
T.Rowe Price Group Inc Stock Valuation – February 2016 $TROW
Moody’s Corporation Stock Valuation – February 2016 $MCO
KKR & Co LP Stock Valuation – February 2016 $KKR
Capital One Financial Corp Valuation – January 2016 Update $COF
Franklin Resources Inc Valuation – January 2016 Update $BEN


The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Back To Top