Knight Capital Group, Inc.

Knight Capital is seeing gains from expansion of its electronic trading business. The company has surprised on estimates the last two quarters on average of 52.94%. Knight Capital's forward P/E is 12.43.

Full Analysis

Knight Capital Group, Inc. (NITE - Snapshot Report) offers financial services to clients around the world. The company, a Zacks #1 Rank (Strong Buy), has two business segments: Global Markets and Asset Management.

Its Global Markets segment provides market access and trade execution services in U.S. equities, international securities, futures, options, foreign exchange and fixed income to more than 1700 buy-side firms.

In the Asset Management segment, Knight owns a 51% stake in international hedge fund Deephaven Holdings. Deephaven Partners controls the other 49%.

On May 6, the company announced it acquired privately-held Libertas Holdings, LLC, an institutional fixed income brokerage firm for $75 million, using $50 million in cash and $25 million in unregistered Knight stock, payable upon the close.

Libertas specializes in high-yield, distressed, asset-backed and mortgage-backed securities (ABS/MBS) and provides clients with proprietary research on companies and target sectors. The company has 59 employees.

Knight reports its average daily trade volume every month. On May 14, it reported that average daily trade volume for April rose 64% to $15.7 billion. The average daily trades increased to 1.7 million from 1.1 million a year ago. The number of shares in the average trading day, however, fell to 3.4 billion from 4.7 billion in April 2007.

The company attributed the increase in trade volume to growth in buy- and sell-side clients and new products and services.

Knight Capital Group Surprises on First Quarter Estimates by 20.69%

On Apr 16, Knight Capital reported first quarter earnings that beat Wall Street estimates by 20.69%, or six cents per share. Net income was $32.5 million, or 35 cents per share, compared to $33.2 million or 32 cents per share in the year-ago period. Analysts expected 29 cents per share.

Revenues declined in 2008 to $224.9 million compared with $241.7 million for the first quarter of 2007. The Global Market segment, however, showed a strong year-over-year gain of $218.8 million compared to $172.6 million in 2007.

The Asset Management segment struggled in what the company called one of the most difficult quarters in the fund's 14-year history. Deephaven Capital Management collected only $15.2 million in asset management fees versus $60.7 million in the year ago period.

The company has also been repurchasing stock under a $1.0 billion repurchase program. In the first quarter, NITE repurchased 1.4 million shares for $22.8 million. Under the program, Knight has repurchased 60.6 million shares for $649 million. The company may or may not be purchasing in the future.

Estimates Rise for the Second Quarter and the Full Year

In response to the latest earnings report and other news, brokerage analysts have been raising second quarter and full year estimates. Consensus estimates for the second quarter are up two cents in the last 60 days to 31 cents from 29 cents per share.

For the year, consensus estimates are up 10 cents in the last two months to $1.29 from $1.19 per share.

Knight Capital Group's forward P/E is 12.43. Its price-to-book is 1.78. The company's return on equity (ROE) in 2007 was 14.00%.