LPL Financial Holdings Inc.’s (LPLA - Free Report) solid advisor productivity and inorganic growth efforts are expected to keep supporting its top-line growth amid the coronavirus-induced economic slowdown. Moreover, even if the economic situation worsens, the company’s current liquidity position is enough to meet its interest and debt repayments.
Over the past 30 days, the Zacks Consensus Estimate for current-year earnings has moved 10% upward.
However, persistently increasing expenses are expected to hurt the company’s bottom line to an extent in the near term.
Also, its price performance is not very encouraging. Because of the current crisis, shares of LPL Financial have lost 35.6% so far this year compared with a 24.1% decline recorded by the industry.
Thus, the stock currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Looking at its fundamentals, advisory revenues (constituting 39.6% of net revenues in the first quarter of 2020) have witnessed a six-year (2014-2019) CAGR of 8.2%. 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 agreed to acquire the assets of Lucia Securities.
Moreover, LPL Financial is expected to continue to enhance shareholder value through meaningful capital deployment activities. As of Mar 31, 2020, it was authorized to purchase up to $349.8 million worth of shares. While the company has currently paused share buybacks in response to the concerns surrounding the coronavirus outbreak, it will likely be able to sustain efficient capital deployments in the future given its solid capital position.
Notably, of the many companies that have suspended share buybacks currently, some big names are JPMorgan (JPM - Free Report) , Citigroup (C - Free Report) and Bank of America (BAC - Free Report) .
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 quarter of 2020 as well. 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 a concern.
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