Envestnet Quarterly Results Ahead this Week

Envestnet is scheduled to report fourth-quarter results on Thursday, February 20, after markets close. At $42.45, the stock trades at 40 times 2015 adjusted EPS estimate, which excludes stock-based compensation expense and amortization of acquired intangibles. We believe upside over the long term could come from a combination of continued execution, potential growth acceleration if broker-dealers begin to consolidate their TAMP offerings, QPs taking off, and additional accretive acquisitions.

Over the next few months, we continue to favor a buy-on-market-dips approach to the stock as investor expectations are high, equity market volatility has picked up (which could lead to a temporary increase in redemption rates down the road), and near-term results and potential for additional accretive acquisitions are both held back by the ongoing WMS integration.

Momentum with independent advisor networks (IANs) should continue These firms—including HighTower Advisors, Focus Financial, Dynasty Financial Partners, and United Capital—are consolidators in the independent financial advisory space, making acquisitions a key component of their respective growth strategies. While the firms vary considerably, each is an important and growing Envestnet client.

We believe most or all advisors at Dynasty and United Capital use the Envestnet platform, while HighTower and Focus offer advisors more choice and may be more reporting-centric clients. Bottom line, we expect to see significant consolidation activity in the RIA space in the coming years, driven by scale benefits, succession planning needs, and a broad array of growth-minded IANs looking to add advisors.