Waddell & Reed Reaffirmed Neutral - Analyst Blog
October 03 2011 - 9:06AM
Zacks
We have reiterated our Neutral recommendation on Waddell
& Reed Financial Inc. (WDR) after a thorough review of
its second-quarter 2011 earnings results and continuous improvement
in its assets under management (AUM).
Waddell & Reed’s second-quarter 2011 earnings per share were
a penny ahead of the Zacks Consensus Estimate. The results in the
quarter were primarily aided by higher gross sales across all the
company’s revenue channels, improved revenues, growth in AUM, lower
redemptions and modest improvement in operating margin. However,
these positives were mitigated by higher operating expenses.
Additionally, Waddell & Reed has recorded a surge of 300% in
AUM over the last 12 years with about $92 billion in AUM as of June
30, 2011. There were continued strong investment performances
behind this growth story. Also, despite unfavorable market and
economic conditions, the performance of the company is
commendable.
Waddell & Reed has been enhancing shareholders value through
dividends and share repurchases. In December 2010, the company had
increased its quarterly dividend by 5.3% to 20 cents per share and
maintained the same level in the first half of 2011 as well.
Further, Waddell & Reed bought back about 958,000 shares at an
aggregate cost of $38 million during the first six months of
2011.
On the flip-side, Waddell & Reed’s investment management
business faces a large number of regulatory rules that aim to
improve mutual fund corporate governance. These changes in rules
could suppress the company’s fee revenues, thereby adversely
affecting the company’s top-line.
Furthermore, Waddell & Reed’s balance sheet contains a
significant amount of intangibles. With redemptions remaining at an
industry low and a significant turmoil in the equity and debt
markets, the company’s net inflows and profitability could be
negatively impacted.
Waddell & Reed currently retains a Zacks #3 Rank, which
translates into a short-term Hold rating. Similarly, one of the
company’s close competitors, Eaton Vance Corp.
(EV) also retains a Zacks #3 Rank (short-term Hold rating).
EATON VANCE (EV): Free Stock Analysis Report
WADDELL&REED -A (WDR): Free Stock Analysis Report
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