Waddell & Reed Financial, Inc. (WDR - Analyst Report) recently delivered a 19% earnings surprise driven by solid revenue growth and an increase in assets under management.
Analysts have been revising their estimates higher over the last several months, sending the stock to a Zacks #2 Rank (Buy). The company also rewarded its shareholders recently with a dividend hike.
Third Quarter Results
Waddell & Reed reported third quarter earnings per share of 47 cents, beating the Zacks Consensus Estimate by 9%. It was an 18% increase over the same quarter in 2009.
Total operating revenues increased 16.9% year-over-year. Underwriting and distribution fees were up 18.1%, while investment management fees grew 17.4%. Total assets under management grew 17.8% to $75.97 billion.
The company continues to gain market share as inflows during the quarter represented annualized organic growth of 3.9%, compared to an estimated 2.6% for the industry.
Meanwhile, total operating income grew 22.3% due in part to lower general and administrative expenses as a percentage of revenues.
Estimates have been moving higher over the last several months, particularly for 2011. This movement can be seen in the company's Price & Consensus chart:
The Zacks Consensus Estimate for 2010 is $1.78, representing a 45% increase over 2009 EPS. The 2011 estimate is currently $2.20, equating to 23% EPS growth.
After holding its dividend steady since 2008, the company raised it 5.3% in October. Since 2000, it has raised its dividend at a compound annual growth rate of 8.6%.
It currently yields 2.1%.
Shares trade at 16.8x forward earnings, a discount to the industry average of 18.8x. Its PEG ratio is a reasonable 1.3.
Waddell & Reed Financial, Inc. is one of the oldest mutual fund companies in the U.S. It is the exclusive underwriter and distributor of 41 mutual fund portfolios. The company also provides investment management and financial planning services to its clients.
It is headquartered in Overland Park, Kansas and has a market cap of $3.1 billion.
Todd Bunton is the Growth & Income Stock Strategist for Zacks.com.