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Solid Advisor Productivity Aids LPL Financial (LPLA), Costs Ail

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LPL Financial Holdings Inc. (LPLA - Free Report) is well-positioned for top-line growth, supported by solid advisor productivity and its inorganic growth efforts. Even if the economic situation worsens, the company’s current liquidity position is enough to meet its interest and debt obligations.

Over the past 30 days, the Zacks Consensus Estimate for LPLA’s current-year earnings has been revised 2% upward. This reflects that analysts are optimistic regarding its earnings growth potential.

However, increasing expenses are expected to hurt LPLA’s bottom line to an extent in the near term. The presence of substantial amounts of goodwill on the company’s balance sheet is another woe. Thus, LPLA currently carries a Zacks Rank #3 (Hold).

Shares of LPL Financial have gained 22.2% over the past three months compared with 15.8% growth recorded by the industry.

 

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Looking at its fundamentals, the company’s advisory revenues (constituting 50% of total revenues in the first half of 2022) witnessed a six-year (2016-2021) compound annual growth rate (CAGR) of 22.3%, with the uptrend continuing in the first six months of 2022. Given LPLA’s recruiting efforts and continued solid advisor productivity, advisory revenues are expected to improve further.

The acquisition of Allen & Company and the launch of a no-transaction-fee exchange-traded fund network will likely continue to boost the value of LPL Financial’s advisory platform.

Given a solid balance sheet position, LPL Financial remains on track to grow inorganically. It has accomplished several deals over the past few years.

This July, it entered an agreement to acquire the private client group business of Boenning & Scattergood. In 2021, it acquired Waddell & Reed's wealth management business for $300 million. In October 2020, the company acquired Blaze Portfolio, while in August, it acquired the assets of E.K. Riley Investments, LLC and Lucia Securities.

These, along with the past inorganic expansion efforts, continue to help LPL Financial diversify revenues and support growth.

LPL Financial is expected to continue to enhance shareholder value through meaningful capital deployments. It pays out dividends on a quarterly basis. Also, it has a share buyback program, which had been paused in response to the concerns surrounding the coronavirus outbreak. However, the company resumed repurchases in the third quarter of 2021. It targets buybacks of $40 million per quarter. As of Jun 30, 2022, LPL Financial had $159.8 million worth of shares to be repurchased.

However, its expenses have witnessed a CAGR of 13.7% over the last six years (2016-2021), with the uptrend continuing in the first half of 2022. The rise can be attributed to an increase in almost all cost components. As LPL Financial continues to increase headcount, compensation and benefits costs are expected to keep rising, hurting the bottom line to an extent.

A large part of the company’s revenues comes from commissions. Commission income is dependent on the overall performance of the capital markets. While LPLA’s commission revenues increased in 2021 and slightly in the first six months of 2022, the same has been volatile for the past several years. Hence, given the cyclical nature of the capital markets, commission revenues might be negatively impacted in the future if there is a slowdown in market activities.

The presence of substantial amounts of goodwill and intangible assets on LPL Financial’s balance sheet, which is subject to annual impairment reviews, remains concerning.

Stocks to Consider

A couple of better-ranked stocks from the finance space are Associated Banc-Corp (ASB - Free Report) and German American Bancorp, Inc. (GABC - Free Report) .

Associated Banc-Corp’s earnings estimates have moved 10.6% upward over the past 60 days. Its share price has risen 14.1% in the past three months. ASB currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

German American Bancorp’s earnings estimates for 2022 have been revised 7.6% upward over the past 60 days. Its share price has increased 5.3% in the past three months. GABC carries a Zacks Rank #2 (Buy) at present.


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LPL Financial Holdings Inc. (LPLA) - free report >>

German American Bancorp, Inc. (GABC) - free report >>

Associated BancCorp (ASB) - free report >>

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