Envestnet Looks to Keep Up Its Momentum

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Financial companies do best when the markets are performing well, and as a provider of key services to the financial industry, Envestnet (ENV 0.65%) also sees its fortunes rise and fall in sync with the stock market. Weakness early in the year put pressure on Envestnet, but heading toward its second-quarter financial report in early August, investors expect that the compliance and administrative specialist will manage to keep sales soaring, even if earnings take a slight step backward. Let's take an early look at Envestnet and how it has fared recently, with an eye toward figuring out if better times for the markets will translate into solid growth for the company.

Stats on Envestnet

Source: Yahoo! Finance.

Will earnings start growing again?

In recent months, investors have had mixed views on Envestnet earnings. They've cut their forecasts for the second quarter by a penny per share, but they've boosted their full-year 2016 and 2017 expectations by 3% to 4%. The stock has done even better, jumping another 20% since mid-April.

Envestnet's first-quarter results reflected the company's sensitivity to changing conditions in the financial markets. Revenue jumped 37%, meeting the expectations of analysts following the stock, but adjusted net income fell by 7%. Fundamentals still looked favorable, including an 18% rise in assets under management and administration along with about a 40% jump in new fee-based accounts compared to the year-ago quarter. However, Envestnet projected that earnings would post a year-over-year decline in the second quarter, and despite solid inflows, investors didn't feel as confident about the company's prospects as they had before.

Planning for the future

Uncertainty about the market's prospects hasn't stopped Envestnet from moving forward with technological innovations. In May, the company unveiled its Open ENV platform, an integrated end-to-end tool that brings together all aspects of the wealth management process for advisors and the financial institutions that employ them. By using open architecture application programming interfaces, Open ENV makes the full suite of recent technology updates available to Envestnet customers. The platform includes tools for aggregating data from multiple account sources, personal financial management and goals-based tools, and workflow tools to handle internal operational needs. Given the breadth of Envestnet's client list, a comprehensive platform is necessary to meet all of its customers' needs, and Open ENV promises to provide that.

An example shows how successful Envestnet has been in working with key partners. The company said in late May that its partnership with Fidelity's Clearing & Custody Solutions division had reached the $150 billion mark in assets on its Managed Accounts Solutions platform. The growth in assets was the result of several factors, and Envestnet said that it expects even greater penetration because of Department of Labor rules that will encourage some professionals to recommend managed accounts more frequently. By tapping into this growth trend, Envestnet could see its platforms become even more popular in the years to come.

Moreover, Envestnet appeals to smaller financial operations that have greater need for the support it can provide. Signator Investors added unified managed account and separate accounts capabilities to its suite of managed offerings to clients in June, and it uses Envestnet's platform to streamline its operations and make those capabilities available to its national network of independent financial professionals.

When the Envestnet earnings report arrives, investors will be looking for an explanation for any disparity between sales growth and bottom-line gains. If earnings continue to lag behind sales growth, then the company will have to convince its shareholders that the money it's spending on expansion will eventually lead to even stronger profits in the future.