Zack’s Bull of the Day: Interactive Brokers
Higher market volatility seen this year bodes well for investment brokers’ market making business. Further Interactive Brokers has been witnessing strong growth in its brokerage business with its better-than-peer positioning and adoption of latest technology.
Headquartered in Greenwich, CT, Interactive Brokers Group Inc. (NASDAQ:IBKR) is currently the largest electronic broker in the U.S., as measured by revenue trades. They provide electronic access to stocks, options, futures, forex, bonds, funds, ETFs and CFDs from a single IB Universal Account.
They started as a market maker in 1977 and launched their brokerage business in 1993. Currently brokerage accounts for about 97% of the group’s revenue. With a highly automated business model, they are able to provide access to more than 100 markets in 24 countries and generate about $1.2 million in revenue per employee. Their commissions and financing rates are among the lowest in the group of major brokers.
Excellent Fourth Quarter Earnings
The company reported its fourth quarter results on January 20. Overall operating metrics showed improvement across all major product types versus the previous year quarter. Average overall daily trade volume was 1.25 million trades per day, up 22% from the fourth quarter of 2013.
Electronic brokerage recorded solid increases in the number of customer accounts and customer equity. Total and cleared customer daily average revenue trades were both up from the year ago quarter and sequentially.
Adjusted earnings per share of $0.12 per share were much ahead of the Zacks Consensus Estimate of $0.05 per share, thanks to lower expenses. The results, which were 71% higher than the year-ago quarter, benefited from a substantial decline in operating expenses, partially offset by lower revenues.
The management believes that they will be able to attract more accounts in the aftermath of Swiss National Bank’s action as customers realize the importance of being with a well-capitalized broker. Their customers’ suffered losses (in excess of deposits) were about $120 million, or 2.3% of their total equity capital.
Positive Earnings Estimates Revisions
After excellent results, analysts have raised their estimates for the company. Zacks Consensus Estimates for the current and next year are now $1.22 and $1.38 per share, up from $1.18 and $1.35 per share respectively, 60 days ago.
Rising estimates sent the stock back to Zacks Rank #1 (Strong Buy) after the results.
Solid Industry Rank
Zacks industry rank for “Investment Brokers” is currently 40 out of 265 (top 15%).
The Bottom Line
With its strong e-brokerage, diversified revenue base and strong technology adoption, Interactive Brokers is well positioned for solid growth in the future. Further top Zacks Industry Rank also indicates strong chances of outperformance in the short- to- medium term.
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