Waddell & Reed Financial, Inc. (NYSE:WDR) shareholders are probably feeling a little disappointed, since its shares fell 8.2% to US$15.50 in the week after its latest quarterly results. Revenues were US$268m, approximately in line with expectations, although statutory earnings per share (EPS) performed substantially better. EPS of US$0.48 were also better than expected, beating analyst predictions by 12%. Following the result, the analysts have updated their earnings model, and it would be good to know whether they think there's been a strong change in the company's prospects, or if it's business as usual. So we gathered the latest post-earnings forecasts to see what estimates suggest is in store for next year.
Taking into account the latest results, Waddell & Reed Financial's six analysts currently expect revenues in 2021 to be US$1.04b, approximately in line with the last 12 months. Statutory per-share earnings are expected to be US$1.42, roughly flat on the last 12 months. In the lead-up to this report, the analysts had been modelling revenues of US$1.04b and earnings per share (EPS) of US$1.40 in 2021. So it's pretty clear that, although the analysts have updated their estimates, there's been no major change in expectations for the business following the latest results.
It will come as no surprise then, to learn that the consensus price target is largely unchanged at US$15.56. Fixating on a single price target can be unwise though, since the consensus target is effectively the average of analyst price targets. As a result, some investors like to look at the range of estimates to see if there are any diverging opinions on the company's valuation. There are some variant perceptions on Waddell & Reed Financial, with the most bullish analyst valuing it at US$17.50 and the most bearish at US$13.50 per share. This is a very narrow spread of estimates, implying either that Waddell & Reed Financial is an easy company to value, or - more likely - the analysts are relying heavily on some key assumptions.
Taking a look at the bigger picture now, one of the ways we can understand these forecasts is to see how they compare to both past performance and industry growth estimates. It's also worth noting that the years of declining sales look to have come to an end, with the forecast for flat revenues next year. Historically, Waddell & Reed Financial's sales have shrunk approximately 7.3% annually over the past five years. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to see their revenue grow 6.0% per year. So it's pretty clear that, although revenues are improving, Waddell & Reed Financial is still expected to grow slower than the industry.
The Bottom Line
The most obvious conclusion is that there's been no major change in the business' prospects in recent times, with the analysts holding their earnings forecasts steady, in line with previous estimates. Fortunately, the analysts also reconfirmed their revenue estimates, suggesting sales are tracking in line with expectations - although our data does suggest that Waddell & Reed Financial's revenues are expected to perform worse than the wider industry. The consensus price target held steady at US$15.56, with the latest estimates not enough to have an impact on their price targets.
Following on from that line of thought, we think that the long-term prospects of the business are much more relevant than next year's earnings. We have forecasts for Waddell & Reed Financial going out to 2024, and you can see them free on our platform here.
However, before you get too enthused, we've discovered 2 warning signs for Waddell & Reed Financial (1 makes us a bit uncomfortable!) that you should be aware of.
This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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