On Mar 21, 2013, we reaffirmed our Neutral recommendation on
Waddell & Reed Financial Inc . ( WDR ) based on its
better-than-expected results, robust assets under management (AUM)
and meaningful capital deployment activities. However, the presence
of substantial intangibles on its balance sheet and downward
pressure on investment advisory fees remain the major causes of
concern for this asset management company.
Why the Neutral Stance?
Waddell & Reed's fourth-quarter 2012 earnings from continuing
operations were marginally ahead of the Zacks Consensus Estimate.
This also compared favorably with the prior-year quarter earnings.
Results benefited from augmented top line, partially offset by
Further, in the past 60 days, few estimates have moved up, helping
the Zacks Consensus Estimate for 2013 rise by a meager 2.8%.
Similarly, estimates for 2014 have increased by 2.5% over the same
period. In addition, over the past 4 quarters, the average earnings
surprise has been a decent 5.6% for the company.
Waddell & Reed's AUM trajectory has displayed powerful growth,
rising nearly 319% to $96.4 billion from $23 billion 12 years ago,
when it was converted into a publicly traded company. The company
has a history of enhancing shareholder value through dividend
payments and share repurchases.
In Nov 2012, the company increased its quarterly dividend by 12%
and has maintained it ever since. Additionally, the board had paid
a special cash dividend in Dec 2012. Moreover, Waddell & Reed
repurchased approximately 1.5 million shares of its common stock at
an aggregate cost of about $49 million in 2012.LAZARD LTD (LAZ): Free Stock Analysis ReportLEGG MASON INC (LM): Free Stock Analysis ReportVIRTUS INVESTMT (VRTS): Free Stock Analysis
ReportWADDELL&REED -A (WDR): Free Stock Analysis
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Yet, the presence of substantial intangibles on its balance sheet
makes us apprehensive. Further, the highly equity-centric nature of
AUM and the new rules adopted by the Securities and Exchange
Commission for improvement of mutual fund corporate governance
could lead to further downward pressure on investment advisory
fees, thereby adversely impacting the company's revenue and
Other Stocks to Consider
Better performing stock in the same sector include Virtus
Investment Partners, Inc. ( VRTS ), Lazard
Ltd . ( LAZ
) and Legg Mason Inc. ( LM ). All these carry a
Zacks Rank #1 (Strong Buy).