Legg Mason (NYSE: LM) and Affiliated Managers Group (NYSE:AMG) are both mid-cap finance companies, but which is the superior business? We will compare the two businesses based on the strength of their risk, institutional ownership, earnings, dividends, valuation, profitability and analyst recommendations.

Insider & Institutional Ownership

83.5% of Legg Mason shares are held by institutional investors. Comparatively, 96.4% of Affiliated Managers Group shares are held by institutional investors. 12.7% of Legg Mason shares are held by insiders. Comparatively, 1.4% of Affiliated Managers Group shares are held by insiders. Strong institutional ownership is an indication that hedge funds, endowments and large money managers believe a company will outperform the market over the long term.

Risk & Volatility

Legg Mason has a beta of 2.27, indicating that its stock price is 127% more volatile than the S&P 500. Comparatively, Affiliated Managers Group has a beta of 1.7, indicating that its stock price is 70% more volatile than the S&P 500.

Dividends

Legg Mason pays an annual dividend of $1.12 per share and has a dividend yield of 3.0%. Affiliated Managers Group pays an annual dividend of $0.80 per share and has a dividend yield of 0.4%. Legg Mason pays out 43.8% of its earnings in the form of a dividend. Affiliated Managers Group pays out 8.7% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. Affiliated Managers Group has raised its dividend for 7 consecutive years.

Profitability

This table compares Legg Mason and Affiliated Managers Group’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Legg Mason 8.46% 7.15% 3.49%
Affiliated Managers Group 23.29% 17.63% 8.93%

Analyst Ratings

This is a breakdown of recent recommendations for Legg Mason and Affiliated Managers Group, as provided by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Legg Mason 3 2 5 0 2.20
Affiliated Managers Group 0 2 5 0 2.71

Legg Mason currently has a consensus target price of $43.11, suggesting a potential upside of 14.84%. Affiliated Managers Group has a consensus target price of $206.43, suggesting a potential upside of 11.52%. Given Legg Mason’s higher possible upside, equities analysts plainly believe Legg Mason is more favorable than Affiliated Managers Group.

Earnings and Valuation

This table compares Legg Mason and Affiliated Managers Group’s gross revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio NetIncome Earnings Per Share Price/Earnings Ratio
Legg Mason $2.89 billion 1.22 $227.25 million $2.56 14.66
Affiliated Managers Group $2.19 billion 4.69 $472.80 million $9.24 20.03

Affiliated Managers Group has higher revenue, but lower earnings than Legg Mason. Legg Mason is trading at a lower price-to-earnings ratio than Affiliated Managers Group, indicating that it is currently the more affordable of the two stocks.

Summary

Affiliated Managers Group beats Legg Mason on 11 of the 16 factors compared between the two stocks.

About Legg Mason

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.

About Affiliated Managers Group

Affiliated Managers Group, Inc. is an asset management company with equity investments in boutique investment management firms. The Company operates in three segments, which represent its principal distribution channels: Institutional, Mutual Fund and High Net Worth. The equity method investments in the Institutional distribution channel are made in relationships with public and private client entities, including foundations, endowments, sovereign wealth funds and retirement plans for corporations and municipalities. The equity method investments in the Mutual Fund distribution channel are made in advisory or sub-advisory relationships with active return-oriented mutual funds, Undertakings for Collective Investment in Transferable Securities and other retail products. The equity method investments in the High Net Worth distribution channel are made in relationships with high net worth and ultra-high net worth individuals, families, trusts, foundations, endowments and retirement plans.

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