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WisdomTree Investments: Strong Buy

WETF WIBC

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Positive earnings momentum on the back of strong second quarter results -- including an earnings surprise of 100.0% -- helped WisdomTree Investments, Inc. (WETF - Snapshot Report) achieve a Zacks #1 Rank (Strong Buy) on October 5. With a solid year-to-date return of 12%, this exchange-traded funds (ETFs) sponsor and asset manager offers an attractive investment opportunity.

The Rank Driver

WisdomTree Investments is expected to release its third quarter earnings on October 24. The Zacks Consensus Estimate for the quarter is 3 cents per share. The company reported in line results in three of the last four quarters and surpassed in the other.

Better-than-expected second quarter earnings and decent ETF assets position are the primary rank drivers for this stock.

WisdomTree Investments reported its second quarter results on July 27 with net income per share of 2 cents, beating the Zacks Consensus Estimate as well as the prior-year quarter’s earnings of 1 cent by 100.0%. Robust results for the reported quarter were primarily aided by elevated total revenue which was attributed to higher ETF advisory fees.

Total revenue increased 22.2% to $20.4 million from $16.7 million in the year-ago quarter. However, on the downside, total operating expenses escalated 8.8% on a year-over-year basis to $17.3 million. Elevated compensation and benefits expenses and higher professional and consulting fees primarily led to the overall rise in total expenses.

As of June 30, 2012, ETF assets under management were $15.0 billion, up 16.0% from $12.9 billion recorded in the prior-year quarter, aided by higher inflows.

Earnings Momentum

The Zacks Consensus Estimate for 2012 has remained stable at 8 cents per share over the last 90 days. The current estimate implies a year-over-year growth of 285.7%. For 2013, over the same time frame, the Zacks Consensus Estimate decreased 4.2% to 23 cents per share, indicating a year-over-year growth of 194.4%.

Valuation

WisdomTree Investments currently trades at a forward P/E of 87.4x, at a significant premium to the peer group average of 15.8 x. On a price-to-book basis, the shares are trading at 22.4x, at a significant premium to the peer group average of 2.3x. Given the company's strong fundamentals, the valuation looks reasonable.

WisdomTree Investments has a trailing 12-month ROE of 24.1% compared with the peer group average of 9.6%.

About the Company

Headquartered in New York, WisdomTree Investments, Inc. conducts business as an exchange-traded funds (ETFs) sponsor and asset manager. Additionally, the company provides investment advisory services. WisdomTree Investments, founded in 1985, has a market capitalization of roughly $859.0 million.

Wilshire Bancorp Inc. (WIBC - Snapshot Report) is also a Zacks #1 Rank bank stock.

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