Can Waddell & Reed (WDR) Keep the Earnings Streak Alive? - Analyst Blog

Waddell & Reed Financial, Inc. WDR is scheduled to report its first-quarter 2014 results on Tuesday, Apr 29, before the opening bell.

In the last quarter, Waddell & Reed delivered a 12.2% positive earnings surprise on the back of higher revenues and strong assets under management (AUM) growth. Moreover, the company recorded an earnings beat in all the 4 quarters of 2013, with an average surprise of 7.4%.

Will Waddell & Reed deliver a positive earnings surprise this season as well? Or will it disappoint? Let us see how things have shaping up for this announcement.   

Factors to Influence Q1 Results

Though the overall market remained volatile during the quarter, major U.S. equity indices witnessed a rise that favorably impacted the investment management industry. We believe that Waddell & Reed has benefited from this favorable trend, with a likely rise in AUM.

Additionally, in consistence with the past trend, Waddell & Reed will expectedly generate strong inflows driven by rise in demand for advisory services and a robust AUM pipeline. This will, in turn, support its top-line growth with increased investment management fees.

However, the company's inability to lower expenses remains a major concern. Continuous enhancement of its distribution network will expectedly keep Waddell & Reed's underwriting and distribution expenses high. Further, compensation expenses will also likely continue to increase. So we do not expect the rise in expense to be reversed this quarter.

The activities of Waddell & Reed during the quarter were not enough to encourage analysts. As a result, the Zacks Consensus Estimate for the quarter remained unchanged at 85 cents per share over the last 7 days.

Earnings Whispers

Our proven model does not conclusively show that Waddell & Reed is likely to beat the Zacks Consensus Estimate in the first-quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy) or at least #2 (Buy) or #3 (Hold) for this to happen. Unfortunately, this is not the case here as elaborated below.

Zacks ESP:  The Earnings ESP for Waddell & Reed is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at 85 cents.

Zacks Rank: Though Waddell & Reed's Zacks Rank #2 increases the predictive power of ESP, we also need to have a positive ESP to be confident about an earnings beat.

Other Stocks to Consider

Here are a few asset managers that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat in the upcoming earnings releases:

AllianceBernstein Holding L.P. AB has an earnings ESP of +2.44% and carries a Zacks Rank #3. It is scheduled to report first-quarter results on Apr 30.

Lazard Ltd. LAZ has an earnings ESP of +1.82% and carries a Zacks Rank #1. It is slated to report first-quarter results on May 1.

The earnings ESP for Legg Mason Inc. LM is +1.12% and it has a Zacks Rank #3. It is scheduled to report fourth-quarter fiscal and full-year 2014 results on May 1.