Shares of the Baltimore-based asset manager jumped 11% in early trading Tuesday, a day after the company posted a fourth-quarter profit, said it would buy back $1 billion worth of stock, and set in motion its latest round of cutbacks.

The moves prompted Stifel Nicolaus (SF) to upgrade the stock to buy from hold, saying the job cuts — Legg Mason (LM) will shed 350 jobs, 10% of its workforce –- are “significant enough to cause operating margins to improve materially over the next few years.” Legg Mason shares hit a 52-week high above $33.

By the time the cuts are complete, Legg Mason will have slashed its ranks by almost 20% from 2007 levels. But the firm’s problem is that employees aren’t the only ones who are leaving:

Fund outflows slowed in the fourth quarter to $11 billion from $33 billion in the previous quarter, leaving the firm with $685 billion under management. Stifel analyst Jeffrey Hopson writes that “we are now more confident that the worst is over in terms of outflows.”

But there’s no getting around how bad the worst was. While funds under management have risen 8% since stock market bottom in March 2009, they are down 29% from their level three years ago.

That was before the credit markets choked and the firm’s star manager, Bill Miller (right), rushed in to take big positions in troubled financial firms such as Countrywide Financial, sold in distress to Bank of America (BAC), and Freddie Mac (FRE), which was taken over by the government.

The hiding Miller’s Legg Mason Value Trust took in that episode has weighed on the firm ever since. Though the fund has returned almost 11% net of fees since 1988 and outperformed the S&P last year, it has lost 7% annually on average over the past five years.

But Miller, unbowed, is betting big-cap stocks can help him bounce back. He predicted in January that the likes of Merck (MRK) and IBM (IBM) will outperform bonds, thanks to their low price-to-earnings multiples and robust dividends. “Like Poe’s purloined letter, these values are hidden in plain sight,” he wrote.