Financial Engines: 7 Different Insiders Have Sold Shares This Year

Jan.23.14 | About: Financial Engines, (FNGN)

In this article, I will feature one financial sector stock that has seen intensive insider selling during the last 30 days. Intensive insider selling can be defined by the following three criteria:

  1. The stock was sold by three or more insiders within one month.
  2. The stock was not purchased by any insiders in the month of intensive selling.
  3. At least two sellers decreased their holdings by more than 10%.

Financial Engines (NASDAQ:FNGN) provides independent, technology-enabled portfolio management services, investment advice, and retirement income services to participants in employer-sponsored defined contribution plans.

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Insider selling during the last 30 days

Here is a table of Financial Engines' insider-trading activity during the last 30 days by insider.

Name Title Trade Date Shares Sold Rule 10b5-1 Current Ownership Decrease In Ownership
Raymond Sims CFO Jan 16 8,127 Yes 40,299 shares 16.8%
Kelly O'Donnell EVP Jan 15 4,337 Yes 11,130 shares + 13,013 options 15.2%
Jeffrey Maggioncalda CEO Jan 14 15,000 Yes 250,677 shares 5.6%
Anne Tuttle EVP Jan 6-9 5,886 Yes 6,921 shares + 19,024 options 18.5%
Mary Lee Sharp EVP Jan 8-21 1,994 Yes 46 shares + 16,086 options 11.0%
Garry Hallee EVP Jan 7 10,000 Yes 125,092 shares + 37,485 options 5.8%
Lawrence Raffone President Jan 6 16,202 Yes 3,710 shares + 64,667 options 19.2%
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There have been 61,546 shares sold by insiders during the last 30 days. All these shares were sold pursuant to a Rule 10b5-1 plan.

SEC Rule 10b5-1 is a regulation enacted by the United States Securities and Exchange Commission (SEC) in 2000. The SEC states that Rule 10b5-1 was enacted in order to resolve an unsettled issue over the definition of insider trading, which is prohibited by SEC Rule 10b-5. After Rule 10b5-1 was enacted, the SEC staff publicly took the position that canceling a planned trade made under the safe harbor does not constitute insider trading, even if the person was aware of the inside information when canceling the trade. This staff interpretation raises the possibility that executives can exploit this safe harbor by entering into 10b5-1 trading plans before they have inside information while retaining the option to later cancel those plans based on inside information.

For example, a CEO of a company could call a broker on January 1 and enter into a plan to sell a particular quantity of shares of his company's stock on March 1, find out terrible news about his company on February 1 that will not become public until April 1, and then go forward with the March 1 sale anyway, saving himself from losing money when the bad news becomes public. Under the terms of Rule 10b5-1(b) this is insider trading because the CEO "was aware" of the inside information when he made the trade. But he can assert an affirmative defense under Rule 10b5-1(c), because he planned the trade before he learned the inside information.

In general, it is a safer way for an insider to sell shares pursuant to a Rule 10b5-1 trading plan than without it.

Insider selling by calendar month

Here is a table of Financial Engines' insider-trading activity by calendar month.

Month Insider selling / shares Insider buying / shares
January 2014 61,546 0
December 2013 90,372 0
November 2013 100,327 0
October 2013 96,395 0
September 2013 94,729 0
August 2013 147,833 0
July 2013 139,730 0
June 2013 96,229 0
May 2013 258,036 0
April 2013 116,724 0
March 2013 149,312 0
February 2013 216,229 0
January 2013 96,078 0
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There have been 1,663,540 shares sold, and there have been zero shares purchased by insiders since January 2013.

Financials

Financial Engines reported the third-quarter financial results on November 5 with the following highlights:

Revenue $62.1 million
Net income $8.1 million
Cash $232.0 million
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Outlook

Financial Engines' guidance is as follows:

FY2013 FY2014
Revenue $238-$240 million $274-$279 million
Non-GAAP adjusted EBITDA ~$80 million $92-$94 million
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Competition

Financial Engines' competitors include Ameriprise Financial (NYSE:AMP), and Morningstar (NASDAQ:MORN). Here is a table comparing these companies.

Company FNGN AMP MORN
Market Cap: 3.40B 22.06B 3.58B
Employees: 380 12,235 3,490
Qtrly Rev Growth (yoy): 0.28 0.14 0.08
Revenue: 225.11M 10.96B 688.38M
Gross Margin: 0.62 0.55 0.70
EBITDA: 46.06M 3.26B 213.36M
Operating Margin: 0.19 0.28 0.24
Net Income: 27.14M 1.43B 120.06M
EPS: 0.53 6.78 2.68
P/E: 127.38 16.71 29.16
PEG (5 yr expected): 2.55 0.81 1.90
P/S: 15.20 2.02 5.20
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Financial Engines has the highest P/S ratio among these three companies.

Here is a table of these competitors' insider-trading activities during the last 12 months.

Company Insider buying / shares Insider selling / shares
AMP 0 1,291,032
MORN

0

168,113
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Only Financial Engines has seen intensive insider selling during the last 30 days.

Conclusion

There have been seven different insiders selling Financial Engines, and there have not been any insiders buying Financial Engines during the last 30 days. Five of these seven insiders decreased their holdings by more than 10%. Financial Engines has an insider ownership of 0.50%.

There are four analyst buy ratings, one neutral rating, and zero sell ratings with an average price target of $66.25. Before going short Financial Engines, I would like to get a bearish confirmation from the Point and Figure chart. The three main reasons for the proposed short entry are bearish analyst price targets, relatively high P/S ratio, and the intensive insider-selling activity.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.