Different can be good. A.G. Edwards
Results for the second quarter seem to be pretty respectable. Revenue was up more than 9% and earnings climbed nearly 23%. Revenue was driven by strong single-digit growth in commissions as well as double-digit growth in asset management and investment banking fees. These all more than offset a fairly sharp drop in revenue from principal transactions.
Elsewhere, compensation expense climbed 9.2%, and management held non-comp expense growth to just 4%. Annualized return on equity was a so-so 10.8%. Last but not least, the company saw a 19% increase in assets in fee-based accounts.
Now, why do I say that A.G. Edwards is different? Well, trading is an unusually small (and shrinking) part of revenue. That clearly separates Edwards from the likes of Lehman Brothers
What's more, a friend of mine used to work at A.G. Edwards, and his comments suggest that the company has a much different philosophy than most other financial services houses. Client service was so important, my friend told me, that voice mail was very much frowned upon -- the idea was that a caller should always talk to a human being. He also praised the management's "thousand-year view," which prompted them to assess and react to the market in a very different way than many competitors.
Is different good here? I like the company's emphasis on client service and growing its base of managed assets. That's a healthy, stable, cash-rich type of business. I'm not so keen on the firm's somewhat unimpressive returns on capital, but that could improve. Putting it all together, I think A.G. Edwards could succeed over time (or get bought out), but today's price doesn't make it a clear bargain.
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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
