Asset managers are expected to post impressive fourth-quarter earnings when they report in bulk this week. Unfortunately, most analysts believe the good times are already reflected in the share prices.

"As a group, the asset managers finished the year on a high note, as the year-end rally and strong inflows drove asset and earnings growth for the fourth quarter and into 2006," says Matt Snowling, analyst at Friedman Billings Ramsey. Snowling expects the group's earnings for the December quarter to rise roughly 3% from a year earlier, and is looking for growth of 24% for all of 2006, up from 10% in 2005.

Despite his robust earnings forecast, Snowling believes that investors are paying too high a premium for the stocks, which is why he only has a buy rating on one member of the group,

Franklin Resources

(BEN) - Get Report

.

Snowling estimates the average asset manager is trading at close to 21 times 2006 earnings, 33% higher than the

S&P 500's

15.9 multiple, as well a historic high for the sector. Franklin, which reports its fiscal first-quarter results Thursday, has a forward P/E right in line with the group, yet Snowling says the company's international exposure, plus its ability to take market share, still make it a good bet. Analysts surveyed by Thomson First Call are looking for a profit of $1.12 a share and sales of $960 million. A year earlier, Franklin earned 92 cents a share, with sales of $675 million.

Franklin reported assets under management of $464.8 billion for the month ended Dec. 31, compared with $453.2 billion in the preceding month and $402.2 billion at the same time a year earlier.

Also reporting Thursday will be Snowling's least favorite member of the group,

Janus Capital

(JNS)

. Analysts, on average, expect the Denver-based asset manager to report earnings of 16 cents a share and sales of $239 million. A year earlier, the company earned 13 cents a share on revenue of $240 million.

To view Gregg Greenberg's video take of this article, click here

.

Revenue may be flat at Janus, but the stock has been anything but. Flying in the face of most analysts' predictions, Janus shares are up more than 30% since last year. In general, the rise is attributed to take-out speculation and a presumption that growth investing, Janus' forte, will soon be in vogue again.

But Snowling and others say the firm's climb has stretched its valuation to untenable levels of more than 28 times 2006 earnings.

"Nobody can afford them at this point and people buying the stock as a play on a growth stock comeback will surely be disappointed, because that has not been the part of their business that has been growing," says Snowling, referring to Janus' quantitative-based Intech offering.

Like Snowling, J.P. Morgan analyst Patra Chakshuvej recommends investors shy away from Janus' pricey shares. But Chakshuvej also recommends underweighting

Federated Investors

(FII) - Get Report

, the third major asset manager releasing quarterly results Thursday, even though the company has a multiple well below the group's average, at slightly over 18. Analysts expect the Pittsburgh-based asset manager to earn 49 cents a share, up from the 44 cents its reported last year, on revenue of $245 million.

"While the stock trades at a discount to its peers, we believe the company's involvement in late trading and market timing, its concentration in money market assets, and its struggle to grow long-term assets and diversify its AUM base will continue to depress the company's valuation in the near term," writes Chakshuvej in a recent note.

Federated listed $207 billion in assets as of Sept. 30, a number surely to have grown in the fourth quarter considering the firm's acquisition of $200 million in mutual fund assets from the Mason Street Fund, as well as market appreciation. Chakshuvej estimates that 74% of Federated's AUM is concentrated in money funds.

Chakshuvej's top pick in the asset management sector is

Affiliated Managers Group

(AMG) - Get Report

, which hasn't yet announced a specific earnings release date.

Another Asset Manager, Another Top Pick

In his latest note to investors, Rob Lee, an analyst for Keefe Bruyette & Woods, writes that the risk and reward of most asset management stocks is not compelling right now. Like Snowling, Lee says that valuations are stretched, leaving "little room for disappointment whether it's in terms of net flows or earnings."

The lone company Lee recommends in the space is

Alliance Capital

(AC) - Get Report

, which is still trading at a reasonable valuation of just over 18 times 2006 earnings. The company raised its earnings estimate earlier this month, citing higher market returns and net inflows into international and global services. New York-based Alliance, which reports on Wednesday, said fourth-quarter earnings "may approach or slightly exceed" $1 per unit, compared with its previous guidance of 75 cents to 90 cents per unit.

Analysts polled by First Call still project Alliance will post a profit of 89 cents a unit, up from 82 cents last year. Alliance, which is controlled by

AXA Financial

( AXA) also said the quarter will include a 2-cent-per-unit gain from the sale of a South African joint venture.

Says Lee, "In our view, investors should focus on those stocks which we think can continue to generate healthy net inflows and which trade at more reasonable valuations, which is why our top pick remains Alliance Capital."

The analysts are generally, but not overwhelmingly, more positive on shares of

T. Rowe Price

(TROW) - Get Report

, rating the Baltimore-based asset manager at market perform or neutral.

T. Rowe Price is scheduled to report quarterly earnings Friday. Analysts are looking for the company to report a profit of 83 cents a share and sales of $401 million. For last year's fourth quarter, T. Rowe posted earnings of 71 cents a share on sales of $345 million.

The asset managers will follow in the tracks of smaller firms that kicked off the earnings season last week with strong results.

BlackRock

(BLK) - Get Report

reported a profit that easily topped Wall Street estimates amid a 96% surge in revenue, while

State Street

(STT) - Get Report

posted 35% profit growth and EPS that beat by a penny.

Nuveen

( JNC) reported flat results, but an 18% rise in assets under management.