Please note that we are adding Financial Engines (FNGN) to Investing Ideas today. Below is a note from Hedgeye CEO Keith McCullough explaining why. We will include additional, in-depth research color from Financials analyst Jonathan Casteleyn in this weekend's edition of Investing Ideas.
According to McCullough:
I've been trying to get longer (net) in signal/idea terms (on red, patiently) ahead of this Fed decision tomorrow. If the Fed does nothing but reiterate what it has been saying all year long ("data dependence") I go with the "buy everything" call on that (just like I did at the March 18th Fed decision).
"Buy everything" is more of a generalization obviously - what I mean by that is a dovish Fed means A) Rates Down (bonds up) B) Dollar Down (stocks and commodities up). With Financial Engines specifically, we have a very much hated high short interest stock whose fundamentals have recently shifted from slowing to #accelerating.
Here's Jonathan Casteleyn's latest take on that front:
- Financial Engines (FNGN) reported an in line quarter on both top and bottom line last night but boosted its full year 2015 guidance for revenue and EBITDA. The newest outline for revenues is now $315-$321 million, an increase of $2 million from the prior midpoint with the firm’s annual EBITDA marker now $97-$101 million, a $1 million increase from the midpoint in the last communication in 4Q14. With the firm’s revenue result of $75 million in the period, this creates a consistent ramp up in top line for the rest of the year with guidance outlining a $79 million result on average per quarter.
- The firm’s seasoning rates while flat were guided to higher levels as well. The crux of this story will be the firm’s ability to turn its $1.0 trillion in assets-under-contract (AUC) into assets-under-management (AUM). While FNGN’s 26 month seasoning rate was flat year-over-year at 13.0%, the firm’s mark-to-market at quarter end hit a 13.1% penetration rate. In addition, the firm outlined that several large plans with lower penetration levels entered the 26 month cohort, which is blending overall penetration lower (but masking higher penetration outside of these plans).
- With the increase in guidance and a generally favorable outline for the firm to improve its penetration rate, the setup is still too bearish in our view. With new highs in short interest and still marginally positive progress in core financials we maintain our positive disposition. We estimate fair value is $55 per share based on a $1.3 trillion AUC opportunity for the firm. We should know in the next several quarters if the firm’s penetration level can really improve which will drive the stock in the mean time.
Buy signal here at the low-end of the FNGN risk range (power users of the #Process note that this recent correction in the stock came on decelerating volume, whereas the recent highs came on accelerating volume.
Cheers from London where its Pub time,