Legg Mason

[icetonez]

I'm doing a research report on Legg Mason and am projecting their fair value price out to 5 years from now. I have found a 6% growth rate embedded in the stock based on a 1.5% risk free rate of return, a market return of 9%, a beta of 1.2, and a cost of capital of 10.8%. I realize that the intrinsic value of the stock is not based so much on my g rate, but other factors that I must back up with evidence. I was hoping that someone can tell me if my assumptions of a 15% growth in sales are based in logic. You don't have to agree with my predictions. But I would like them to make sense [img]/images/graemlins/smile.gif[/img]

Assumptions:

1. Bush being reelected will mean an increase in investor confidence which will move the market up and therefore help LM. Bush implementing privitized social security will provide an influx of cash for LM.

2. Traditional pensions are no longer popular, and cash balances will continue to increase and therefore bring in more business for LM. Also babyboomers rolling over their 401ks.

3. Bill Miller is a stud and will continue to beat the S&P. This will mean free advertising and an increase in brand equity. It will also help make a stronger argument that the EMH is not completely true, making investing in fee based funds reasonable.

4. I'd like to make a prediction about energy and how it will affect the market in the future (so much on LM's performance will depend on Market performance)

So far from what I can tell Legg is a good company to buy (if you think the market will do well). In the next few years Value Line predicts a price between $65 and $95, so maybe I am on the right track. If anyone is interested in my final product, just PM me.