The asset managers have performed well year to date, and for the most part I have favored the Legg Mason (LM) story, given the restructuring and M&A. So when Waddell & Reed Financial (WDR) showed up on one of my screens recently, I was intrigued, especially since the stock is off 15% from its April highs and fits my style of "growth at a reasonable price." After doing the analysis, I recommended it as my final trade yesterday on Fast Money Halftime, and I thought I'd expand on my thoughts.
Waddell & Reed is a fundamental research global asset manager based in Overland Park, Kan. It is best known for its equities and asset allocation products, but it offers 20 different strategies which have at least $1 billion in assets. The diversification and strong management bench are among the reasons the company is able to produce above-average organic growth, which has been 8% on average over the last five years.
It distributes its products via wholesale, advisers and institutional. It entered the wholesale market over 10 years ago, and along with its solid performance, it now garners about 2% of sales at many of the U.S. broker-dealers around the country. Growth will come from further penetration of its existing products, new product introductions, expansion of the wholesale market and increasing its penetration in the institutional channel, which accounts for 13% of total assets under management.
This year, the company is expected to grow 8% in assets, 20% in revenue and 25% in earnings. Next year, flows should increase by mid-single digits, with revenue at 9% and earnings of 11%. The asset-flow assumption could prove conservative, considering that the company posted 14% growth in the last two quarters.