Sterne Agee analysts estimated that Bill Gross will be able to attract approximately $35 billion of fixed income inflows for Janus Capital Group Inc (NYSE:JNS) by the end of 2016.
Last week, Bill Gross surprisingly announced his departure from PIMCO to join Janus Capital Group Inc (NYSE:JNS) to manage the recently launched Janus Global Unconstrained Bond Fund and related strategies.
Significant growth is possible over time
Sterne Agee analysts Jayson Weyeneth and Samuel Ross said their estimated $35 billion of fixed income inflows represent about 10% of the total assets under management (AUM) by Bill Gross at PIMCO.
According to the analysts, they based their estimates based on potential earnings power and the assumption of a 45 bps average fee rate, 50% incremental margins and a peer average 12.5X ’16 P/E multiple.
Weyeneth and Ross said, “Our updated estimates embed slightly higher AUM gains (+$45 billion).” According to them, a significant growth is possible over time.
“Our estimates assume a slightly stronger $5 billion of quarterly inflows ($45 billion of incremental AUM by 4Q16) as we believe JNS’ distribution relationships in Japan can help drive incremental asset growth,” wrote Wyeneth and Ross in a note to investors.
The analysts also noted that the recent performance of Bill Gross’ strategies suffered, and he will only manage unconstrained bond fund of Janus Capital Group Inc (NYSE:JNS) in the beginning. According to them, Gross will likely manage other products in the future and a considerable portion (close to 60%) of assets he previously management (institutional or held within retirement plan).
Janus Capital can leverage on Bill Gross skill-set
Weyeth and Ross emphasized that Bill Gross has a long-term track record and Janus Capital Group Inc (NYSE:JNS) can leverage of his brand name and skill-set to expand its product offering. With the Gross, the firm could also boost its penetration in the U.S. retail, U.S. institutional and Japanese markets.
Updated Price Target, EPS Estimates
According to the analysts, the increase in the stock price of Janus Capital Group Inc (NYSE:JNS) on the news that Bill Gross is joining the firm was justified. The firm’s stock price climbed as much as 37% after the announcement, and it is trading around $14.48 per share at the time of this writing, 11:07 A.M. in New York.
Weyeneth and Ross said, “We find it difficult to get more constructive on the shares at this juncture given the level of uncertainty regarding the timing and success of scaling Bill Gross’ new fund, and other yet-to-be-launched products, materially beyond what already appears priced into the shares.”
The analysts raised their price target of $17 for the shares of Janus Capital Group Inc (NYSE:JNS) based on 14.5x ’15E cash operating earnings plus the ~$1.10 of net cash & investments on the balance sheet.
They also increase their EPS estimate for Janus Capital Group Inc (NYSE:JNS) to $1.00 from $0.89 for 2015 based on their new estimate of $5 billion in quarterly fixed income inflows, and the assumption of approximately 50% incremental margin. They reduced their fiscal 2014 estimate by one cent to $0.76 per share based on the recent asset trends.