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Can Envestnet Survive a Falling Stock Market in 2016?

By Dan Caplinger – Feb 20, 2016 at 12:58PM

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Some fear that the wealth-management technology firm is exposed to a market correction.


Image source: Envestnet.

The stock-market boom over the past seven years has helped the financial industry recovery from near-ruin, and that has opened up the door for Envestnet (ENV -2.08%) to tap the new strength of investment management firms. Envestment helps financial professionals deal with the day-to-day administrative and operational tasks involved in wealth management, and Leucadia National's (JEF -0.43%) Jefferies Group is just one of the many clients that Envestnet has tapped. Yet with the market having fallen sharply so far in 2016, Envestnet investors are coming into Thursday's fourth-quarter financial report with some trepidation about whether the company can keep growing at its past breakneck pace. Let's take an early look at what Envestnet is likely to tell investors on Thursday and whether it can grow even if markets don't rebound.

Stats on Envestnet

Analyst EPS Estimate

$0.23

Change From Year-Ago EPS

0%

Revenue Estimate

$115.94 million

Change From Year-Ago Revenue

19.8%

Earnings Beats in Past 4 Quarters

2

Data source: Yahoo! Finance.

How will Envestnet earnings fare?
In recent months, investors have gotten more nervous about Envestnet's long-term earnings prospects, cutting their full-year 2016 views by nearly a dime per share. The stock has also been under pressure, losing nearly a third of its value since mid-November.

Envestnet's third-quarter results in November showed the company's ability to stand up to tough market conditions. Despite the big correction in August and September, Envestnet saw adjusted revenue climb 17%, and earnings gains of 18% were almost exactly what investors had expected to see. Assets under management and administration climbed 14% despite the market downturn, and the company boasted more than 30,000 advisors using Envestnet's cloud-based platform to manage their clients' accounts and their internal operations. Cost discipline also helped boost Envestnet's bottom line.

Yet the big news from the quarter was the completion of Envestnet's acquisition of Yodlee in mid-November. As Envestnet CEO Jud Bergman said, "Yodlee's pioneering data aggregation solutions greatly strengthen Envestnet's broadly integrated wealth management platform." Moreover, the CEO believes that the move will help advisors better serve their clients by aggregating information to let professionals see entire portfolios to do holistic planning.

Since then, Envestnet has worked to try to help a wider range of clients handle their financial-services needs. In January, the company said that it had started working with Leucadia National's Jefferies Wealth Management Partners to update technology, offer more products and services, and improve its operational efficiency. Jefferies believes that having Envestnet products available will make it easier for the investment firm to hire new advisors, and that could be a compelling sales pitch for Envestnet to make to other financial institutions considering its platform.

The question Envestnet will have to answer is whether it can continue to grow key metrics like assets under management even if the stock market doesn't cooperate. Shares of publicly traded investment management companies have been under considerable pressure lately, because the key source of their revenue tends to be directly proportional to their assets under management. It's early for Envestnet shareholders to be worried about the potential trickle-down impact of a weaker financial industry on its own ability to boost growth. But if financial companies start to clamp down on capital spending, Envestnet might find it hard to generate as much business as it has in the past.

In the Envestnet earnings report, investors should look to understand exactly what impact the Yodlee acquisition will have on the combined company's financials in the coming year. With investors expecting big gains in revenue from the combination, Envestnet will have to execute well in order to show that the $590 million price tag was money well spent for the transaction -- especially if industry weakness comes at a particularly inopportune time.

Dan Caplinger has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Leucadia National. The Motley Fool recommends Envestnet. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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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Stocks Mentioned

Jefferies Financial Group Inc. Stock Quote
Jefferies Financial Group Inc.
JEF
$32.62 (-0.43%) $0.14
Envestnet Stock Quote
Envestnet
ENV
$46.60 (-2.08%) $0.99

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