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Why Financial Engines, Inc. Shares Stalled

By Sean Williams – Feb 21, 2014 at 2:29PM

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Shareholders hit the brakes after Financial Engines' fourth-quarter and full-year guidance misses the mark. Should shareholders be buying this dip, or should they head for the exit?

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Financial Engines (FNGN), a technology-enabled portfolio management services provider to employer-sponsored defined contribution plans, dipped as much as 18% after reporting its fourth-quarter earnings results after the closing bell last night.

So what: For the quarter, Financial Engines reported a 27% increase in revenue to $65.2 million as its professional management revenue soared 30% to $56.4 million. Assets under management also grew by $6.2 billion to $88.2 billion from the sequential third quarter. Adjusted net income vaulted higher as well, rising 45% to $11.9 million from $8.2 million in the year-ago quarter. However, this translated to $0.22 in EPS compared to Wall Street's forecast, which had called for EPS of $0.23.

Looking ahead, the company anticipates reporting full-year revenue of $274 million-$279 million in fiscal 2014 with adjusted EBITDA of $92 million-$94 million, representing adjusted-EBITDA growth of 17% at the midpoint. Extrapolating out its EBITDA forecast, I'd estimate this to equate to EPS in the $0.87-$0.90 range, depending on margins. By comparison, Wall Street was looking for $287.7 million in revenue and $0.94 in EPS for fiscal 2014.

Now what: Financial Engines has already had an impressive run higher, so a pullback was probably overdue. Overall, these results may not have met lofty expectations built up by the Street, but its assets under management growth and double-digit professional service growth will keep propelling its top and bottom lines higher. At close to 60 times 2014's profit potential, I'm still apt to keep my distance, but a major dip from current levels could necessitate a closer look, as it's clearly outpacing its competitors in the growth department.

Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

The Motley Fool has no position in any companies mentioned in this article. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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