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Growth & Income

Estimates have been rising for Waddell & Reed Financial, Inc. (WDR - Analyst Report) after the company delivered a solid earnings beat on April 30, driven by strong net flows and an expanding operating margin.

It is a Zacks #2 Rank (Buy).

The company also continues to increase its dividend, which currently yields an attractive 3.1%.

Company Description

Waddell & Reed Financial is one of the oldest mutual fund companies in the U.S. The company also provides investment management and financial planning services to its clients.

The company was founded in 1937 and is headquartered in Overland Park, Kansas. It has a market cap of $2.7 billion.

First Quarter Results

Waddell & Reed reported better than expected first quarter results on April 30. Earnings per share came in at 55 cents, beating the Zacks Consensus Estimate by 5 cents. It was a 17% increase over the same quarter last year.

Operating revenue rose 3% to $307 million, ahead of the consensus of $306 million. Net flows were up substantially from the previous quarter, from $42 million in the fourth quarter of 2011 to $1.3 billion.

Assets under management at the end of the quarter rose 8% from the previous quarter to $90.1 billion.

Meanwhile, the operating margin expanded 190 basis points quarter-over-quarter to 23.7%.

Estimates Rising

The company's strong net flows and solid operating margin expansion prompted analysts to revise their estimates higher for both 2012 and 2013. This sent the stock to a Zacks #2 Rank (Buy).

The Zacks Consensus Estimate for 2012 is now $2.29, representing 12% growth over 2012 EPS. The 2013 consensus is currently $2.64, corresponding with 15% growth.

Dividend

Waddell & Reed raised its dividend a whopping 25% in late 2011. Since 2000, the company has increased its dividend at a compound annual rate of 9%:

WDR: Waddell & Reed Financial, Inc.

It currently yields a solid 3.1%.

Valuation

The valuation picture looks reasonable for WDR. Shares trade at 13.8x 12-month forward earnings, a discount to its 10-year median of 15.9x.

Its price to book ratio of 4.9 is also well below its historical multiple of 7.7.

The Bottom Line

With strong net flows, rising estimates, a solid 3.1% yield and reasonable valuation, Waddell & Reed offers investors a lot of upside potential.

Todd Bunton is the Growth & Income Stock Strategist for Zacks Investment Research and Editor of the Income Plus Investor service.

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