Arguing that the valuations of publicly traded money managers reflect overly optimistic assumptions about the stock market, Prudential lowered its second-quarter estimates on several big names in the sector Monday.
Prudential lowered its quarterly earnings estimates on
to $1.08 per share from $1.11;
to 59 cents a s share from 65 cents;
T. Rowe Price
to 41 cents a share from 44 cents; and
Waddell & Reed
(WDR:NYSE) to 29 cents a share from 35 cents.
According to Prudential, the fall in the
implies that overall assets under management are down 3.3% compared with the previous quarter. "
Second-quarter consensus numbers for asset managers seem to contemplate sequentially higher earnings in the second quarter. For this to occur, there needs to be a sustained recovery in June of more than 10%, a scenario we view as unlikely," Prudential analysts John Hall and Robert Smith said in a report.
As a result, prices in the group are too high, they argued. "The typical assumption embedded in asset management EPS forecasts would be an increase in the equity market of roughly 2%. We view this outcome as unlikely," Hall and Smith said.
Shares in all four asset managers were down this morning.