It seems to be a wise idea to add LPL Financial Holdings Inc. LPLA stock to your portfolio now amid the coronavirus crisis, given its underlying strength and solid growth prospects. The company has been undertaking several initiatives to boost efficiency and optimize operations.
Further, the Zacks Consensus Estimate for the current-year and next-year earnings has moved upward over the past 30 days, reflecting analyst optimism regarding its earnings growth potential. Thus, the stock currently carries a Zacks Rank #2 (Buy).
Shares of LPL Financial have gained 31.9% in the past three months compared with the industry’s growth of 13.1%.
Why is LPL Financial a Must Buy Now?
Revenue Strength: LPL Financial has witnessed a rise in net revenues over the last four years. Notably, the company’s advisory revenues (constituting 39.6% of net revenues in the first quarter of 2020) declined in 2016, but witnessed a six-year CAGR of 8.2% (2014-2019). The uptrend continued in the first quarter of 2020 as well.
Total revenues are projected to grow at a rate of 6.85% in 2021. Moreover, the acquisition of Allen & Company is anticipated to further drive LPL Financial’s revenues.
Earnings Growth: LPL Financial has witnessed earnings growth of 36.96% in the last three to five years. Further, the company’s long-term (three to five years) expected earnings growth rate of 15% promises rewards for shareholders. Notably, LPL Financial has an impressive earnings surprise history. Its earnings surpassed the Zacks Consensus Estimate in all of the trailing four quarters.
The company has a Growth Score of A. Our research shows that stocks with the combination of a Style Score of A or B, and a Zacks Rank #1 (Strong Buy) or 2, offer the best upside potential.
Strategic Moves: Given a strong balance-sheet position, LPL Financial has accomplished several strategic deals over the past few years. This May, it announced a deal to acquire the assets of E.K. Riley Investments, LLC, while in April it agreed to acquire the assets of Lucia Securities. In 2019, the company acquired Allen & Company of Florida, while in 2018, it acquired all of the outstanding shares of AdvisoryWorld. In 2017, the company acquired certain assets and rights of National Planning Holdings, Inc. These deals, along with the other completed deals, poise LPL Financial well for future growth.
Steady Capital-Deployment Activities: The company remains committed to enhancing its shareholder value. It pays dividends on a quarterly basis. Also, it has a share-buyback program in place. 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 related to the coronavirus outbreak, it will likely be able to sustain efficient capital deployments in the future given its solid capital position.
Superior Return on Equity (ROE): LPL Financial has an ROE of 59.55% better than the industry average of 14.28%. This shows that the company reinvests its cash more efficiently.
Stock seems undervalued: With respect to the price-to-earnings (F1) and price-to-sales ratios, LPL Financial seems undervalued. It has a P/E ratio of 12.03 and a P/S ratio of 1.00, both of which are below the respective industry average of 13.5 and 1.12.
Also, the stock has a Value Score of A. The Value Style Score condenses all valuation metrics into one actionable score that helps investors steer clear of ‘value traps’ and identify stocks that are truly trading at a discount. Our research shows that stocks with the combination of a Style Score of A or B, and carrying a Zacks Rank #1 or 2, offer the best upside potential.
Other Stocks to Consider
State Street Corporation STT has witnessed upward earnings estimate revisions for 2020 over the past 30 days. Moreover, this Zacks #2 Ranked stock has gained 16.9% over the past three months. You can see the complete list of today’s Zacks #1 Rank stocks here.
GAIN Capital Holdings, Inc.’s GCAP current-year earnings estimate moved north in 30 days’ time. Further, the company’s shares have rallied 9.1% over the past three months. At present, it carries a Zacks Rank of 2.
Mercantile Bank Corporation MBWM has witnessed upward earnings estimate revisions for the ongoing year in the past 30 days. This Zacks #1 Ranked stock has appreciated 5.1% over the past three months.
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