Why Citigroup Downgraded WisdomTree (WETF)

NEW YORK (TheStreet) -- A downgrade from Citigroup Wednesday sent WisdomTree Investments (WETF) lower over the trading session.

By late afternoon, shares had tumbled 5.3% to $13.45.

Trading volume of 8.3 million was nearly triple its three-month daily average.

The investment firm downgraded WisdomTree to "sell" from "neutral" and cut its target price to $11 from $14.

Analyst William Katz wrote in the report, "Four reasons fuel our shift in thinking. First, the flow story is becoming less differentiated, in our view. Second, the incremental margin opportunity also seems less unique. Third, we believe consensus EPS/flow expectations are at risk. Fourth, we see further P/E multiple contraction as points of differentiation deteriorate -- and recent growth initiatives take time to play out."

The firm has lowered its earnings estimates as a result. Citigroup anticipates net income of 49 cents a share in fiscal 2014 and 62 cents a share in fiscal 2015.

Analysts surveyed by Thomson Reuters anticipate net income of 54 cents a share in fiscal 2014 and 71 cents a share in fiscal 2015.

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TheStreet Ratings team rates WISDOMTREE INVESTMENTS INC as a Buy with a ratings score of B. The team has this to say about their recommendation:

"We rate WISDOMTREE INVESTMENTS INC (WETF) a BUY. This is driven by several positive factors, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its robust revenue growth, notable return on equity, expanding profit margins, good cash flow from operations and impressive record of earnings per share growth. We feel these strengths outweigh the fact that the company is trading at a premium valuation based on our review of its current price compared to such things as earnings and book value."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • WETF's very impressive revenue growth greatly exceeded the industry average of 16.6%. Since the same quarter one year prior, revenues leaped by 83.1%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Capital Markets industry and the overall market, WISDOMTREE INVESTMENTS INC's return on equity significantly exceeds that of both the industry average and the S&P 500.
  • WISDOMTREE INVESTMENTS INC reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, WISDOMTREE INVESTMENTS INC increased its bottom line by earning $0.38 versus $0.08 in the prior year. This year, the market expects an improvement in earnings ($0.54 versus $0.38).
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Capital Markets industry. The net income increased by 213.6% when compared to the same quarter one year prior, rising from $5.25 million to $16.48 million.
  • 38.61% is the gross profit margin for WISDOMTREE INVESTMENTS INC which we consider to be strong. It has increased significantly from the same period last year. Along with this, the net profit margin of 38.16% significantly outperformed against the industry average.

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