WisdomTree Investments, Inc.WETF is scheduled to report third-quarter 2016 results on Oct 28.
Last quarter, this New York-based exchange traded fund ("ETF") and exchange-traded product ("ETP") sponsor reported earnings per share of 3 cents, a significant plunge year over year. Excluding a $6 million charge related to the company's accelerated buyout of the remaining stake in its European unit, adjusted earnings were 7 cents per share. The company witnessed a decline in U.S. listed ETF assets under management (AUM), mainly driven by net outflows while recording significant growth in European listed AUM.
Industry-wide weakness and global concerns were fueled by the Brexit referendum, which took a toll on finance stocks, with WisdomTree tumbling nearly 37% year to date.
WISDOMTREE INV Price and EPS Surprise
Will the upcoming earnings release put further pressure on WisdomTree stock? It largely depends on whether the company is able to post improved profitability for the third quarter. Notably, our quantitative model doesn't call for an earnings beat this time around. Also, the Zacks Consensus Estimate of 6 cents per share for the quarter indicates a year-over-year plunge of 66.4%.
Here is what our model indicates:
WisdomTree doesn't have the right combination of the two key ingredients - a positive Earnings ESP and a Zacks Rank #1 (Strong Buy) or 2 (Buy) or at least 3 (Hold) - that increases the odds of an earnings beat.
Zacks ESP : The Earnings ESP for WisdomTree is 0.00%. This is because the Most Accurate Estimate and the Zacks Consensus Estimate, both are pegged at 6 cents. Please check our Earnings ESP Filter that enables you to find stocks that are expected to come out with earnings surprises.
Zacks Rank : WisdomTree's Zacks Rank #3 increases the predictive power of ESP. However, we also need to have a positive ESP to be confident of a positive earnings surprise.
WisdiomTree's activities during the quarter were inadequate to win analysts' confidence. As a result, the Zacks Consensus Estimate for the quarter remained stable at 6 cents over the last seven days.
Factors at Play
The first two quarters of 2016 have been quite tough for WisdomTree as it was hit with significant outflows. The outflows were mostly driven by international hedged products, particularly the company's major currency-hedged funds - WisdomTree Europe Hedged Equity Fund (HEDJ) and WisdomTree Japan Hedged Equity Fund (DXJ).
The third quarter is no different as the company continued to record elevated outflows ($2.3 billion). While flows in HEDJ and DXJ, which constitute around 40% of the company's AUM, will reflect persistent weakness, the company's other hedged and unhedged international equity ETF may remain stable.
WisdomTree remains focused on executing its strategic growth initiatives, including expansion of distribution capabilities, investment in technology, launch of innovative products and addition of personnel. Given such initiatives, we expect marketing and sales expenses to trend higher in the third quarter.
Considering the heightened volatility around flows, a key area to look at will be compensation expense level during the quarter. Management expects a compensation expense of 24-28% for the year.
Stocks That Warrant a Look
Here are some stocks worth considering, as they have the right combination of elements to post an earnings beat this quarter.
Compass Diversified Holdings LLC CODI is scheduled to report results on Nov 2. It has an Earnings ESP of +2.50% and a Zacks Rank #2. You can see the complete list of today's Zacks #1 Rank stocks here .
Ares Capital Corporation ARCC is slated to release results on Nov 2. The company has an Earnings ESP of +2.63 % and a Zacks Rank #3.
PennyMac Financial Services, Inc. PFSI has an Earnings ESP of +6.82% and carries a Zacks Rank #2. The company is slated to release results on Nov 3.
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