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Virtu Financial (VIRT) Up 55.1% in a Year: More Room to Run?

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Virtu Financial Inc. (VIRT - Free Report) has been in investors' good books on the back of its capital position amid the current market volatility.

Over the past seven days, the stock has witnessed its 2021 and 2022 earnings estimates move 2.4% and 4.9% north, respectively.

The company is a high-frequency trader and hence, consistently gaining from the COVID-led market volatility. Unlike other companies, 2020 was a good year for this company after it suffered an uninterrupted financial market in recent years. The company managed to surpass on earnings in all the trailing four quarters, the average being 24.8%.

In a year’s time, shares of this Zacks Rank #3 (Hold) company have soared 55.1% against the industry’s decline of 19.8%.



Other companies in the same space, such as Euronet Worldwide, Inc. (EEFT - Free Report) and Houlihan Lokey, Inc. (HLI - Free Report) have also gained 2.6% and 16.6% whereas PRA Group, Inc. (PRAA - Free Report) has lost 3.5% in the same time frame. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Its recently reported fourth-quarter 2020 earnings per share of $1.18 beat the Zacks Consensus Estimate of 81 cents by 45.7%. Moreover, the bottom line skyrocketed 337% year over year on the back of reduced costs and higher revenues. Although the market is slowly gaining stability, we expect Virtu Financial to gain traction for the upcoming months.

The company is steadily gaining from both its segments, namely Market Making and Execution Services. Market Making has been contributing a lion’s share to the company’s revenues for a while now. The segment is well-poised for growth on the back of improvement in exchange traded products block desk and better options capabilities. Revenues from this business surged 152.2% in 2020. The company’s segment provides wholesale Market Making services to retail investors across more than 200 platforms.

Notably, the Execution Services segment is constantly gaining from the ITG buyout, which diversified its revenues along with leveraging its core technology. ITG helps brokers and asset managers reduce the cost of investments via technology-enabled liquidity, execution, analytics and workflow solutions. In 2020, revenues from this segment grew 32.2% year over year on commissions, workflow technology and analytics.

The company’s solvency position impresses. Virtu Financial already paid down debt worth $289 million in 2020. Repayment of debt enabled the company to successfully reduce the debt by 16.5% from 2019 end to $1.67 billion as of Dec 31, 2020. Its total debt is 47.5% of capital, lower than the industry’s average of 58.7%. Its times interest earned at 2020 end stands at 8.9X, higher than the industry's average of 4.9X.

On the back of its financial strength, the board members approved a $100-million share buyback plan comprising Class A common stock and common units of Virtu Financial LLC through Dec 31, 2021. Further, the board sanctioned the enhancement of the share buyback plan by increasing the total amount authorized by $70 million to $170 million in January 2021. Its dividend yield stands at 3.5%, higher than the industry average of 1.4%. Robust cash flows keep Virtu Financial optimistic about continuing to pay quarterly dividend of 24 cents and also return value to its shareholders via buybacks.

Further Upside Left?

The company’s diversified business strengthens its position for the long haul.

Its high return on equity reflects its efficiency in utilizing shareholder's funds. Its ROE of 59.5% is higher than the industry average of 18.5%.
Given the existing market condition, we expect the company to continue gaining traction from its solid segmental contributions and the COVID-led market unpredictability.

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