Morgan Stanley analyst Michael Cyprys upgraded T. Rowe Price Group Inc. to "equal weight" and downgraded Legg Mason Inc. and Hamilton Lane Inc. to "underweight" and "equal weight," respectively.
The analyst upgraded T. Rowe Price, taking into account its strong investment performance and improving flow trajectory. However, he cautioned that the stock valuation may come under strain due to growing fee pressure, rising competition in the retirement channel and increasing expenses. He raised his price target for the company to $93 from $77. Cyprys raised his EPS estimate for 2018 to $5.75 from $5.11.
In downgrading Legg Mason and Hamilton Lane, Cyprys said share prices of the two companies have seen a run-up in recent times.
With regard to Legg Mason, he said flows have been volatile at newer affiliates, which is weighing on revenue growth. Further, the analyst said Legg Mason's multi-affiliate structure with legacy contracts limits its ability to control expenses and its higher leverage reduces its capacity to make strategic acquisitions. He cut his price target to $36 from $37. The analyst lowered his 2018 EPS estimate to $2.71 from $2.77.
On Hamilton Lane, he said the company has a "less volatile" earnings stream compared to other asset mangers, limited mark-to-market risk and conservative performance fee structure. He said the recent acquisition of Real Asset Portfolio Management LLC should help the company grow its assets under management and management fee, adding that the company is "well positioned" to capture growth in alternative investments. He decreased his price target to $28 from $25. He raised his EPS estimate for 2018 to $1.20 from $1.15.