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Buyouts, Solid Advisor Productivity Aid LPL Financial Amid Cost Woes
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LPL Financial Holdings Inc.’s (LPLA - Free Report) solid advisor productivity, recruiting efforts and inorganic expansion initiatives are expected to continue to aid the top line. However, increasing expenses are likely to hurt the company’s bottom line in the near term.
LPLA’s Key Growth Drivers
Solid Advisor Productivity: LPLA benefits from its efforts to increase its client base. The company’s advisory revenues, which constitute more than 43% of total revenues, witnessed a five-year (2018-2023) compound annual growth rate (CAGR) of 18.2%, with the uptrend continuing in the first six months of 2024.
Its recruiting efforts, strategic acquisitions and solid advisor productivity are expected to keep supporting the top line. The launch of a no-transaction-fee exchange-traded fund network should also boost the value of LPL Financial’s advisory platform.
We project advisory revenues to increase 20.8% in 2024, 15.5% in 2025 and 11.5% in 2026.
Strategic Acquisitions: Acquisitions are a core part of LPLA’s business expansion strategy. Given a strong balance sheet position, the company has accomplished several opportunistic deals over the years.
In September 2024, it entered into an agreement to acquire The Investment Center, Inc., a broker-dealer and registered investment advisor. In May, LPLA acquired the wealth management business of Crown Capital. In February, it announced an agreement to acquire Atria Wealth Solutions that should bolster its offerings in the wealth management solutions market.
In 2023, the company took a minority stake in IAA (a hybrid registered investment advisory firm), acquired FRGIS and the Private Client Group business of Boenning & Scattergood.
The above-mentioned buyouts, along with the other previous deals, have aided LPL Financial in diversifying its revenues, adding new capabilities and accelerating expansion into new markets.
Enhanced Capital Distributions: LPL Financial’s capital distribution activities are impressive. In February 2023, the company announced a 20% hike in its quarterly dividend, taking the figure to 30 cents per share.
Also, it has a share buyback program in place. As of June 30, 2024, LPL Financial had $830 million worth of shares left to be repurchased. While buybacks have been paused currently until the closure of the Atria Wealth Solutions acquisition deal, the company will begin repurchasing shares soon after that. Thus, given a solid capital position, LPLA is expected to continue to be able to sustain efficient capital distributions in the future, enhancing shareholder value.
Key Headwinds for LPL Financial
Elevated Expenses: LPLA’s operating expenses witnessed a CAGR of 14% over the past five years (2018-2023), with the uptrend continuing in the first six months of 2024. As the company continues to increase headcount, compensation and benefits costs are expected to keep rising.
This, along with strategic acquisitions and steps taken to upgrade technology to better serve clients, is expected to keep overall expenses elevated in the near term. Per our estimates, total expenses should increase 19.9%, 13.9% and 8.8% in 2024, 2025 and 2026, respectively.
Capital Markets Uncertainty: A large part of LPL Financial’s revenues comes from commissions, which constituted 26.6% of total revenues in the first half of 2024. Commission income is dependent on the overall performance of the capital markets and has been volatile for the past several years.
While commission revenues increased in 2021, they declined in 2022 and then increased again in 2023 and the first six months of 2024. These revenues are likely to be negatively impacted in the future if there is a slowdown in capital markets activities, given its cyclical nature.
LPLA’s Price Performance & Zacks Rank
Over the past six months, LPLA’s shares have lost 21.9% against the industry’s growth of 9.7%.
Earnings estimates for JHG for the current year have been revised 5.2% upward over the past 60 days. The company’s share price has increased 21.7% over the past six months.
Estimates for AB’s current-year earnings have been revised 1% upward over the past 60 days. The company’s shares have risen 2.6% over the past six months.
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LPL Financial Holdings Inc.’s (LPLA - Free Report) solid advisor productivity, recruiting efforts and inorganic expansion initiatives are expected to continue to aid the top line. However, increasing expenses are likely to hurt the company’s bottom line in the near term.
LPLA’s Key Growth Drivers
Solid Advisor Productivity: LPLA benefits from its efforts to increase its client base. The company’s advisory revenues, which constitute more than 43% of total revenues, witnessed a five-year (2018-2023) compound annual growth rate (CAGR) of 18.2%, with the uptrend continuing in the first six months of 2024.
Its recruiting efforts, strategic acquisitions and solid advisor productivity are expected to keep supporting the top line. The launch of a no-transaction-fee exchange-traded fund network should also boost the value of LPL Financial’s advisory platform.
We project advisory revenues to increase 20.8% in 2024, 15.5% in 2025 and 11.5% in 2026.
Strategic Acquisitions: Acquisitions are a core part of LPLA’s business expansion strategy. Given a strong balance sheet position, the company has accomplished several opportunistic deals over the years.
In September 2024, it entered into an agreement to acquire The Investment Center, Inc., a broker-dealer and registered investment advisor. In May, LPLA acquired the wealth management business of Crown Capital. In February, it announced an agreement to acquire Atria Wealth Solutions that should bolster its offerings in the wealth management solutions market.
In 2023, the company took a minority stake in IAA (a hybrid registered investment advisory firm), acquired FRGIS and the Private Client Group business of Boenning & Scattergood.
The above-mentioned buyouts, along with the other previous deals, have aided LPL Financial in diversifying its revenues, adding new capabilities and accelerating expansion into new markets.
Enhanced Capital Distributions: LPL Financial’s capital distribution activities are impressive. In February 2023, the company announced a 20% hike in its quarterly dividend, taking the figure to 30 cents per share.
Also, it has a share buyback program in place. As of June 30, 2024, LPL Financial had $830 million worth of shares left to be repurchased. While buybacks have been paused currently until the closure of the Atria Wealth Solutions acquisition deal, the company will begin repurchasing shares soon after that. Thus, given a solid capital position, LPLA is expected to continue to be able to sustain efficient capital distributions in the future, enhancing shareholder value.
Key Headwinds for LPL Financial
Elevated Expenses: LPLA’s operating expenses witnessed a CAGR of 14% over the past five years (2018-2023), with the uptrend continuing in the first six months of 2024. As the company continues to increase headcount, compensation and benefits costs are expected to keep rising.
This, along with strategic acquisitions and steps taken to upgrade technology to better serve clients, is expected to keep overall expenses elevated in the near term. Per our estimates, total expenses should increase 19.9%, 13.9% and 8.8% in 2024, 2025 and 2026, respectively.
Capital Markets Uncertainty: A large part of LPL Financial’s revenues comes from commissions, which constituted 26.6% of total revenues in the first half of 2024. Commission income is dependent on the overall performance of the capital markets and has been volatile for the past several years.
While commission revenues increased in 2021, they declined in 2022 and then increased again in 2023 and the first six months of 2024. These revenues are likely to be negatively impacted in the future if there is a slowdown in capital markets activities, given its cyclical nature.
LPLA’s Price Performance & Zacks Rank
Over the past six months, LPLA’s shares have lost 21.9% against the industry’s growth of 9.7%.
Image Source: Zacks Investment Research
Currently, LPLA carries a Zacks Rank #3 (Hold).
Stocks Worth Considering
A couple of better-ranked stocks from the finance space are Janus Henderson Group plc (JHG - Free Report) and AllianceBernstein Holding L.P. (AB - Free Report) . Currently, JHG sports a Zacks Rank #1 (Strong Buy), while AB has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Earnings estimates for JHG for the current year have been revised 5.2% upward over the past 60 days. The company’s share price has increased 21.7% over the past six months.
Estimates for AB’s current-year earnings have been revised 1% upward over the past 60 days. The company’s shares have risen 2.6% over the past six months.