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Interactive Brokers Group (IBKR)

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We are upgrading our recommendation on Interactive Brokers Group (IBKR) to Outperform based on substantially better-than-expected first quarter results with the rebound of Market Making and continuous growth in Electronic Brokerage. The initiation of a quarterly dividend was also an impressive move.

Results benefited mainly from improved top line, which was partially offset by higher-than-expected interest and non-interest expenses. Interactive Brokers' fundamentals remain strong with a liquid balance sheet, sturdy capital base and high barriers to entry.

Our six-month target price of $20.00 per share equates to about 17.5x our earnings estimate for 2011. Combined with a quarterly dividend of $0.10 per share, this target price implies an expected total return of 17.0% over that period. This is consistent with our Outperform recommendation.

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