Zacks_Analysts' Blog : Janus Capital's Rating Upped by S&P - Analyst Blog

Janus Capital Group Inc.’s (JNS) credit rating was upgraded by Standard & Poor's Ratings Services to investment grade. The rating agency raised the rating to “BBB-“from “BB+”. The outlook is stable. The upgrade follows an improvement in the company’s financial position in the last 18 months.

The rating agency recognizes the efforts and significant progress the company made in deleveraging its balance sheet in the past six quarters. Janus Capital is expected to maintain debt at the current level and is expected to keep a conservative stance with respect to its financial position.

Janus Capital, which has peers such as Calamos Asset Management Inc. (CLMS) and Waddell & Reed Financial Inc. (WDR), reported third quarter 2010 earnings of 18 cents per share, 2 cents ahead of the Zacks Consensus Estimate. Total revenue increased 7% year over year to $243.8 million, and surpassed the Zacks Consensus Estimate of $242.0 million.

The company experienced an increase in assets under management (AUM) and investment management fees. As of September 30, 2010, Janus Capital’s total AUM was $160.8 billion compared with $147.2 billion as of June 30, 2010, and $151.8 billion as of September 30, 2009.

Janus Capital has the best-in-class investment boutique with the potential for assets under management and revenue growth along with competitive leverage. However, weak demand due to market volatility warrant caution on the near-term growth outlook. While initiatives to strengthen its business are welcome, the related upfront costs cannot be ignored.

Though fixed income and global businesses are improving, headwinds persist and the company’s equity-heavy portfolio exposes it to equity market volatility. Nevertheless, given its healthy balance sheet and total AUM growth, we believe Janus has the potential to outperform its peer group in the long run.

Janus Capital shares are carrying a Zacks #3 Rank, which translates into a short-term “Hold” recommendation. We also have a Neutral recommendation on the stock for the long term.