Though benefits from a stabilizing economy and gradually improving interest-rate scenario have positioned the investment-management industry well, investment managers might have been affected by the recent Fed’s rate cuts.
With increasing chances of economic uncertainty on coronavirus concerns, most of the asset managers’ assets under management (AUM) numbers have been impacted in February on unfavorable market returns and net long-term outflows.
Nevertheless, with rates rising since 2016, most investment managers witnessed decline in fee waivers aiding top-line growth. Most asset managers recorded solid revenue growth in 2019 backed by increase in AUM, despite escalating compliance and technology costs.
Performance of equity markets remained favorable in the past year, as is evident from 5.1% growth of the S&P 500 Index, which might in turn support AUM.
Therefore, stocks with strong fundamentals and long-term potential can be worth considering. Here we are focusing on two investment managers, Waddell & Reed Financial, Inc. (WDR - Free Report) and Lazard Ltd. (LAZ - Free Report) .
Waddell & Reed, with a market cap of $842.8 million, provides a wide range of investment management and advisory services in the United States. Conversely, Lazard operates as a financial advisory and asset management firm globally and has a market cap of $3.1 billion.
Waddell & Reed currently carries a Zacks Rank #2 (Buy) and 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 (Strong Buy) or 2, offer the best upside potential.
Lazard sports a Zacks Rank #1 (Strong Buy) and has a VGM Score of C. You can see the complete list of today’s Zacks #1 Rank stocks here.
Though both asset managers have similar business trends, deeper research into their financials will help decide which investment option is better.
Lazard has recorded a decline of 16.6% in the past six months compared with the industry 17% decrease. Shares of Waddell & Reed have lost around 28.9% in the same period. So, Lazard performed better than Waddell & Reed.
Both the companies have been deploying capital in terms of dividend payments to enhance shareholder value. Waddell & Reed and Lazard have current dividend yields of 7.79% and 5.81%, respectively.
Although both the stocks’ dividend yield is better than the industry’s average of 3.13%, shareholders of Waddell & Reed gain more.
Waddell & Reed and Lazard have debt-to-equity ratios of 0.12 and 3.41, respectively, compared with the industry average of 0.20. Therefore, Waddell & Reed has an edge over Lazard.
Return on Equity (ROE)
ROE is a measure of a company’s efficiency in utilizing shareholder’s funds. ROE in the trailing 12 months for Waddell & Reed and Lazard is 15.75% and 53.88%, respectively. While both the stocks have scored above the industry’s level of 13.86%, Lazard reinvests its earnings more efficiently.
Earnings Estimate Revisions & Growth Projections
The Zacks Consensus Estimate for 2020 earnings of Waddell & Reed has increased 10% over the past 60 days. The same for Lazard has increased 5.6% over the same time frame.
Earnings for Waddell & Reed for the current year indicate a 5.1% year-over-year jump. For Lazard, the Zacks Consensus Estimate for 2020 earnings stands at $3.76, indicating a year-over-year increase of 14.6%.
Therefore, Lazard has an edge here as well.
Our comparative analysis shows that Waddell & Reed is better positioned than Lazard in terms of dividend yield, leverage ratio and VGM Score. Lazard wins on reinvesting potential, earnings growth expectations and price performance.
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