LPL Financial Holdings Inc. (LPLA) Up 13.6% Since Last Earnings Report: Can It Continue?
A month has gone by since the last earnings report for LPL Financial Holdings Inc. (LPLA). Shares have added about 13.6% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is LPL Financial Holdings Inc. due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
LPL Financial Q4 Earnings Beat, Revenues Improve Y/Y
LPL Financial’s fourth-quarter 2020 adjusted earnings of $1.53 per share surpassed the Zacks Consensus Estimate of $1.36. However, the figure reflects a decline of 9% from the prior-year quarter.
Results for the quarter benefited from an improvement in revenues, partly offset by higher expenses. Further, the company’s balance sheet position remained strong.
After taking into consideration amortization of intangible assets, net income was $111.5 million or $1.39 per share, down from $126.7 million or $1.53 per share in the year-ago quarter.
For 2020, adjusted earnings of $6.46 per share outpaced the Zacks Consensus Estimate of $6.30. Net income (GAAP basis) was $472.6 million or $5.86 per share, down from $559.9 million or $6.62 per share recorded in 2019.
Revenues Improve, Expenses Rise
Total quarterly net revenues were $1.58 billion, up 9% year over year. An increase in all components of revenues except for asset-based revenue and net interest income drove the rise. The figure beat the Zacks Consensus Estimate of $1.53 billion.
For the year, net revenues of $5.87 billion surpassed the Zacks Consensus Estimate of $5.76 billion. The top line increased 4% year over year.
During the quarter, total operating expenses increased 13% year over year to $1.41 billion. All expense components increased, except for professional services costs, promotional expenses and other costs.
At the end of the reported quarter, LPL Financial’s total brokerage and advisory assets were $903.1 billion, up 18% year over year.
Total net new assets were $21.8 billion at the end of the quarter, up from $12.5 billion of new assets recorded at the end of the prior-year quarter. Total client cash balances jumped 45% to $48.9 billion.
Balance Sheet Position Strong
As of Dec 31, 2020, the company had total assets of $6.52 billion, up 7% from the Sep 30, 2020 level. As of the same date, cash and cash equivalents totaled $808.6 million, up 1% sequentially.
Total stockholders’ equity was $1.31 billion as of Dec 31, 2020, up from $1.21 billion recorded at the end of the prior quarter.
Outlook
Because of fewer trading days and seasonally lower fee revenues in the first quarter, the company expects first-quarter 2021 transaction and fee revenues to decline $5 million.
For 2021, management expects core general and administration (G&A) expenses in the range of $975 million and $1 billion (excluding expenses from the acquisition of Waddell & Reed).
Promotional expenses are expected to increase $10 million in the first quarter. Share-based compensation expenses are anticipated to increase by a few million dollars sequentially.
Costs related to depreciation and amortization will likely increase $4 million in the first quarter on a sequential basis.
In first-quarter 2021, the company will record the full-quarter impact of $0.5 billion of fixed rate contacts that matured in the fourth quarter of 2020 as well as another $0.5 billion of fixed rate contracts (that will mature in the first quarter).
First-quarter 2021 insured cash account (ICA) yield is expected to be 100 basis points.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates review.
VGM Scores
At this time, LPL Financial Holdings Inc. has a poor Growth Score of F, however its Momentum Score is doing a lot better with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise LPL Financial Holdings Inc. has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
LPL Financial Holdings Inc. (LPLA) : Free Stock Analysis Report
To read this article on Zacks.com click here.
