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On May 31, 2013, we upgraded Interactive Brokers Group, Inc. (IBKR - Analyst Report) from Neutral to Outperform. This was based on the company’s robust capital position and liquid balance sheet despite its earnings missing the Zacks Consensus Estimate.

Why the Upgrade?

A low leverage set Interactive Brokers apart from its competitors. The company has been able to effectively manage its liquidity and maintain significant borrowing facilities through securities lending markets and banks. The company continues to maintain over $2 billion of excess regulatory capital in its broker-dealer companies worldwide.

Interactive Brokers’ global presence – especially in the fast growing markets of Taiwan, Mexico and India – is expected to be a major growth driver in the near term. Further, the company’s extensive adoption of technology positions it advantageously when compared to peers. Interactive Brokers has a very low level of compensation expense relative to net revenue, mainly due to its technological excellence.

Since its inception, Interactive Brokers has primarily focused on developing proprietary software to automate broker-dealer functions. Hence the company is one of the lowest-cost providers of broker-dealer services. Further, due to its technological superiority, the company was able to quickly make its systems comply with multiple ad hoc trading restrictions imposed by the Securities and Exchange Commission (SEC).

Further, the company’s consistent capital deployment activities are expected to boost shareholders’ confidence.

Other Stocks That Warrant a Look

Interactive Brokers currently carries a Zacks Rank #3 (Hold). Some better performing stocks include Ladenburg Thalmann Financial Services Inc. (LTS - Snapshot Report), LPL Financial Holdings Inc. (LPLA - Snapshot Report) and GAIN Capital Holdings, Inc. (GCAP - Snapshot Report). While the first two carry a Zacks Rank #1 (Strong Buy), the third one holds a Zacks Rank #2 (Buy).

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