Morgan Stanley upgraded shares of Janus (JNS) today–but don’t think that means that they’re pounding the table on the asset manager now that Bill Gross has come over from Pimco. Analysts Thomas Whitehead and Elizabeth Elliott explain why they upgraded the stock to Equal Weight and not higher:
Bloomberg News We believe the hire of Bill Gross is a landmark moment for Janus, strengthening the franchise and could potentially further shift investor sentiment towards the stock. Due to the sheer magnitude of assets under Gross's management while at PIMCO ($300-$500B), it will take just a small share coming over to Janus to make for compelling economics, in our view. We upgrade Janus to Equal-weight, with an $18 price target (+13% upside) and raise our 2015-16e EPS to $1.13 & $1.37 (from 88c & 97c) on an est'd$30B Gross AuM (~10% of his PIMCO retail AuM, slightly less than Neil Woodford's 12% since he left Invesco (IVZ)).
With the recent addition of legendary fixed-income fund manager Bill Gross, Janus has potentially transformed its business overnight. We rate the shares Equal-weight, as we believe the hire pushes Janus closer towards achieving its long-term strategy of Intelligent Diversification. While the news creates plenty of potential opportunities for Janus – instant credibility in the form of a retail brand and new institutional relationships, among others – risks and uncertainty still loom (recent performance/flow issues at Gross's main PIMCO fund, nature of Gross's PIMCO exit, and pending interest rate increases). Commensurate with the additional opportunities/risks, we see a wide range in our bull/bear case outcomes for Janus.
Shares of Janus have dropped 7.1% to $14.77 at 2:37 p.m. today, while Invesco has dropped 1.6% to $39.57.
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