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6 Reasons That Make LPL Financial (LPLA) a Must-Buy Stock Now
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It seems prudent to buy LPL Financial Holdings (LPLA - Free Report) stock now, given its strong fundamentals and strategic expansion efforts. Favorable higher interest rate environment will act as a tailwind. Further, the company’s steady capital-deployment activities reflect a solid balance-sheet position.
The company has been witnessing upward earnings estimate revisions lately, reflecting analysts’ optimism regarding its earnings growth potential. Over the past 30 days, the Zacks Consensus Estimate for earnings has moved 4.9% and 6.9% north for 2022 and 2023, respectively. The stock currently sports a Zacks Rank #1 (Strong Buy).
Shares of LPL Financial have jumped 41.2% so far this year against the industry's 5.8% decline.
Image Source: Zacks Investment Research
Let’s check the major factors that make LPL Financial stock an attractive investment option
Earnings Growth: LPLA has witnessed earnings growth of 17.53% in the past three to five years. The uptrend is expected to continue in the near term. The company’s earnings are projected to surge 61.3% for 2022 and 72.8% for 2023.
Its long-term (three-five years) projected earnings growth rate of 52.6% promises rewards for investors.
Also, the stock has a Growth Score of A. Our research shows that stocks with a Growth Score of A or B, when combined with a Zacks Rank #1 or 2 (Buy), offer the best upside potential.
Revenue Strength: LPL Financial has been making efforts to increase its client base. The company’s advisory revenues (constituting 47.4% of total revenues in the first nine months of 2022) have been increasing over the past several years. Advisory revenues witnessed a six-year (2016-2021) CAGR of 22.3%, with the uptrend continuing in the first nine months of 2022.
Given the company’s recruiting efforts and solid advisor productivity, advisory revenues are expected to keep improving in the quarters ahead. 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.
For 2022, LPLA is expected to witness top-line growth of 11.4%, while for 2023, its revenues projected to grow 15%.
Strategic Buyouts: LPL Financial has concluded several strategic deals over the past few years. This July, the company 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 2020, the company acquired Blaze Portfolio, the assets of E.K. Riley Investments, LLC and Lucia Securities. These, along with the past inorganic expansion efforts, will continue to support growth and help LPL Financial diversify revenues.
Solid Balance Sheet & Capital Positions: As of Sep 30, 2022, LPL Financial had net long-term and other borrowings worth $2.72 billion, and cash and cash equivalents of $1.22 billion. The company has a revolving credit facility, which will not mature anytime soon. Also, its investment-grade ratings of Baa3/BB+ and positive outlook from Moody’s Investors Service and Standard & Poor, respectively, render the company favorable access to the credit markets.
Thus, despite a high debt burden, the company is expected to continue meeting debt obligations in the near term, even if the economic situation worsens.
Robust Capital Deployments: LPLA pays dividends on a quarterly basis. Also, it has a share buyback program in place, which had been paused in response to the concerns surrounding the coronavirus outbreak. However, the company resumed repurchases in the third quarter of 2021.
As of Sep 30, 2022, LPL Financial had $84.8 million worth of shares left to be repurchased. In October, the company announced an increase in its share repurchase authorization, with $2 billion available for repurchase beginning in 2023. Given a solid capital position, the company is likely to be able to sustain efficient capital deployments in the future.
Superior Return on Equity (ROE): LPL Financial’s trailing 12-month ROE supports its growth potential. The company’s ROE of 40.28% compares favorably with the industry’s 13.43%, reflecting that it is more efficient in using shareholders’ funds than peers.
The Zacks Consensus Estimate for Interactive Brokers’ 2022 earnings has moved marginally upward over the past 30 days. So far this year, IBKR’s shares have lost 1.5%.
The Zacks Consensus Estimate for Robinhood Markets’ 2022 loss has narrowed 18.8% over the past 30 days. HOOD’s shares have plunged 46.7% in the year-to-date period.
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6 Reasons That Make LPL Financial (LPLA) a Must-Buy Stock Now
It seems prudent to buy LPL Financial Holdings (LPLA - Free Report) stock now, given its strong fundamentals and strategic expansion efforts. Favorable higher interest rate environment will act as a tailwind. Further, the company’s steady capital-deployment activities reflect a solid balance-sheet position.
The company has been witnessing upward earnings estimate revisions lately, reflecting analysts’ optimism regarding its earnings growth potential. Over the past 30 days, the Zacks Consensus Estimate for earnings has moved 4.9% and 6.9% north for 2022 and 2023, respectively. The stock currently sports a Zacks Rank #1 (Strong Buy).
Shares of LPL Financial have jumped 41.2% so far this year against the industry's 5.8% decline.
Image Source: Zacks Investment Research
Let’s check the major factors that make LPL Financial stock an attractive investment option
Earnings Growth: LPLA has witnessed earnings growth of 17.53% in the past three to five years. The uptrend is expected to continue in the near term. The company’s earnings are projected to surge 61.3% for 2022 and 72.8% for 2023.
Its long-term (three-five years) projected earnings growth rate of 52.6% promises rewards for investors.
Also, the stock has a Growth Score of A. Our research shows that stocks with a Growth Score of A or B, when combined with a Zacks Rank #1 or 2 (Buy), offer the best upside potential.
Revenue Strength: LPL Financial has been making efforts to increase its client base. The company’s advisory revenues (constituting 47.4% of total revenues in the first nine months of 2022) have been increasing over the past several years. Advisory revenues witnessed a six-year (2016-2021) CAGR of 22.3%, with the uptrend continuing in the first nine months of 2022.
Given the company’s recruiting efforts and solid advisor productivity, advisory revenues are expected to keep improving in the quarters ahead. 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.
For 2022, LPLA is expected to witness top-line growth of 11.4%, while for 2023, its revenues projected to grow 15%.
Strategic Buyouts: LPL Financial has concluded several strategic deals over the past few years. This July, the company 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 2020, the company acquired Blaze Portfolio, the assets of E.K. Riley Investments, LLC and Lucia Securities. These, along with the past inorganic expansion efforts, will continue to support growth and help LPL Financial diversify revenues.
Solid Balance Sheet & Capital Positions: As of Sep 30, 2022, LPL Financial had net long-term and other borrowings worth $2.72 billion, and cash and cash equivalents of $1.22 billion. The company has a revolving credit facility, which will not mature anytime soon. Also, its investment-grade ratings of Baa3/BB+ and positive outlook from Moody’s Investors Service and Standard & Poor, respectively, render the company favorable access to the credit markets.
Thus, despite a high debt burden, the company is expected to continue meeting debt obligations in the near term, even if the economic situation worsens.
Robust Capital Deployments: LPLA pays dividends on a quarterly basis. Also, it has a share buyback program in place, which had been paused in response to the concerns surrounding the coronavirus outbreak. However, the company resumed repurchases in the third quarter of 2021.
As of Sep 30, 2022, LPL Financial had $84.8 million worth of shares left to be repurchased. In October, the company announced an increase in its share repurchase authorization, with $2 billion available for repurchase beginning in 2023. Given a solid capital position, the company is likely to be able to sustain efficient capital deployments in the future.
Superior Return on Equity (ROE): LPL Financial’s trailing 12-month ROE supports its growth potential. The company’s ROE of 40.28% compares favorably with the industry’s 13.43%, reflecting that it is more efficient in using shareholders’ funds than peers.
Other Brokerage Stocks Worth a Look
A couple of other top-ranked brokerage stocks are Interactive Brokers Group, Inc. (IBKR - Free Report) and Robinhood Markets, Inc. (HOOD - Free Report) . While IBKR currently sports a Zacks Rank #1, HOOD carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Interactive Brokers’ 2022 earnings has moved marginally upward over the past 30 days. So far this year, IBKR’s shares have lost 1.5%.
The Zacks Consensus Estimate for Robinhood Markets’ 2022 loss has narrowed 18.8% over the past 30 days. HOOD’s shares have plunged 46.7% in the year-to-date period.