Despite the coronavirus-induced economic slowdown, LPL Financial Holdings Inc. (LPLA - Free Report) remains well-positioned for top-line growth, supported by its solid advisor productivity and inorganic growth efforts. Moreover, even if the economic situation worsens, the company’s current liquidity position is enough to meet its interest and debt repayments.
However, persistently increasing expenses are expected to hurt its bottom line to an extent in the near term.
Over the past seven days, the Zacks Consensus Estimate for its current-year earnings has been unchanged. Thus, the company currently carries a Zacks Rank #3 (Hold).
Shares of LPL Financial have gained 19.6% over the past three months compared with 16.8% growth recorded by the industry.
Looking at its fundamentals, advisory revenues (constituting 39% of net revenues in the first half of 2020) witnessed a six-year (2014-2019) CAGR of 8.2%, with the uptrend continuing in the first six months of 2020. Given the company’s recruiting efforts and continued solid advisor productivity, advisory revenues are expected to improve further. Moreover, the acquisition of Allen & Company will likely support advisory revenues.
Given a solid balance sheet position, LPL Financial remains on track to grow inorganically. The company has accomplished several strategic deals over the past few years. Recently, it acquired the assets of E.K. Riley Investments, LLC. In April 2020, it agreed to acquire the assets of Lucia Securities. These deals along with the other completed deals in the past poise LPL Financial well for future growth.
Moreover, the company is expected to continue to enhance shareholder value through meaningful capital deployment activities. While it has currently paused its share buyback program in response to the concerns surrounding the coronavirus outbreak, its solid capital position makes it poised to be able to continue with efficient capital deployments in the future.
However, LPL Financial’s expenses have remained elevated over the past few years. Expenses witnessed a CAGR of 9.1% over the last four years (2016-2019), with the uptrend continuing in the first half of 2020. As the company continues to increase headcount, compensation and benefits costs are expected to keep on rising, thus, hurting the bottom line to an extent.
Moreover, a large part of the company’s revenues comes from commissions. Commission income is dependent on the overall performance of the capital markets. Given the cyclical nature of the capital markets, commission revenues will likely be hurt if there is a further slowdown in market activities.
Further, the presence of substantial amounts of goodwill and intangible assets on LPL Financial’s balance sheet, which are subject to annual impairment reviews, remains concerning.
Stocks to Consider
A few better-ranked stocks from the finance space are mentioned below.
ETRADE Financial Corporation (ETFC - Free Report) witnessed an upward earnings estimate revision of 13% for the current year over the past 60 days. Its share price has increased 28.8% over the past year. It currently carries a Zacks Rank #2 (Buy).
The Zacks Consensus Estimate for TD Ameritrade Holding Corporation’s (AMTD - Free Report) current fiscal year earnings has been revised 21.7% upward over the past 60 days. Its share price has decreased 11.9% over the past 12 months. The company currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Interactive Brokers (IBKR - Free Report) witnessed an upward earnings estimate revision of 26.9% for the current year over the past 60 days. Its share price has increased 12.3% over the past year. It currently carries a Zacks Rank #2.
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