It seems to be a wise idea to add Waddell & Reed Financial, Inc. (WDR - Free Report) stock to your portfolio now, given its underlying strength and solid growth prospects. The company has been undertakingseveral efforts to improve efficiency and optimize operations.
Also, Waddell & Reed’s focus on the Retail Broker-Dealer channel, by providing additional support to its advisors through training opportunities and enhanced technology tools, will boost revenues and assets under management (AUM), going forward.
Further, the company’s Zacks Consensus Estimate for the current-year earnings has marginally moved upward over the past 30 days, reflecting analysts’ optimism regarding its earnings growth potential. Thus, the stock currently has a Zacks Rank #2 (Buy).
Shares of Waddell & Reed have rallied 10.8% in the past year against the industry’s fall of 0.7%.
Why Waddell & Reed is an Attractive Pick
Earnings strength: Even though Waddell & Reed’s earnings have declined in the last three to five years, the trend is expected to reverse in the near term. Its earnings are expected to grow 14.6% in 2018, higher than the industry average of 9.3%.
Also, the company has an impressive earnings surprise history. Its earnings have surpassed the Zacks Consensus Estimate in each of the trailing four quarters, with an average beat of 9.9%.
Further, Waddell & Reed has a Growth Score of A. Our research shows that stocks with a style score of A or B when combined with a Zacks Rank #1 (Strong Buy) or 2 offer the best upside potential.
Revenues regaining momentum: After facing top line pressure over last few years, Waddell & Reed’s initiatives to boost revenue growth have started bearing fruit. The company’s revenues improved in the first half of 2018, driven by decent market performance. Relatively stable operating environment and a decent AUM balance will likely support revenues in the quarters ahead.
Strong leverage: Waddell & Reed’s debt/equity ratio is 0.11 compared with the industry average of 0.22. This shows that the company uses less debt to finance its operations. Hence, it will be financially stable even in adverse economic conditions.
Superior Return on Equity (ROE): Waddell & Reed’s trailing 12-month ROE reflects its superiority in terms of utilizing shareholder funds compared with the peers. The company has an ROE of 19.29%, higher than the industry average of 12.95%.
Stock seems undervalued: With respect to the price/earnings and PEG ratios, Waddell & Reed seems undervalued. It has a P/E (F1) ratio of 9.63 and a PEG ratio of 1.28, both falling below the respective industry averages of 11.54 and 1.35.
Also, the stock has a Value Score of A. The Value Style Score condenses all valuation metrics into one actionable score that helps investors steer clear of ‘value traps’ and identify stocks that are truly trading at a discount.
Favorable VGM Score: Waddell & Reed has a VGM Score of A. Our research shows that stocks with a VGM Score of A or B when combined with a Zacks Rank #1 or 2 offer the best upside potential.
Other Stocks to Consider
Some other stocks in the same space worth a look are Blackstone (BX - Free Report) , SEI Investments Company (SEIC - Free Report) and Prospect Capital Corporation (PSEC - Free Report) . All these stocks carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Over the past 60 days, Blackstone witnessed nearly 1% upward revision in its Zacks Consensus Estimate for current-year earnings. Its shares have jumped 23.3% over the past year.
Over the past 60 days, SEI Investments’ earnings estimates for the current year have been revised upward by nearly 1%. Over the past year, its shares have gained almost 1%.
Prospect Capital has witnessed an upward earnings estimate revision of 9% for the current year, over the past 60 days. Also, its shares have increased 21.1% over the past year.
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