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On Jul 8, 2014, we issued an updated research report on Waddell & Reed Financial, Inc. (WDR - Analyst Report). All the business segments of this Overland Park, KS-based investment manager are performing well, driven by strong inflows. However, rising operating expenses continue to put huge pressure on the company’s financials.

The business segments of Waddell & Reed – advisor channel, wholesale channel and institution channel – witnessed better net inflows in first-quarter 2014 compared with the prior-year quarter. The consistently strong investment performance resulted in solid growth trajectory for the company. Notably, further improvement in the equity market is expected to generate more inflows for the company, which will drive profitability in the long run.

Nevertheless, escalating operating expenses remain a serious concern for the company. Steady increase in compensations and related costs is a major reason behind the mounting expenses. Going forward, regulatory changes and steeper compensation costs are likely to push the expense level even further.

Over the past 60 days, the Zacks Consensus Estimate for 2014 remained unchanged at $3.75 per share, while it declined 0.7% to $4.36 per share for 2015.

Waddell & Reed currently carries a Zacks Rank #3 (Hold).

Stocks that Warrant a Look

Some better-ranked finance stocks include Fortress Investment Group LLC (FIG - Snapshot Report), Kohlberg Kravis Roberts & Co. (KKR - Snapshot Report) and Lazard Ltd. (LAZ - Analyst Report). All these stocks sport a Zacks Rank #1 (Strong Buy).

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