LPL Financial Shares Drop on ‘Sell’ Report

Citi rating comes one week after LPL’s stock rose on more positive equity research

Shares of LPL Financial’s parent company on Monday fell 3.86% and were down 3.7% on Tuesday on news that Citigroup issued a "sell" rating on the stock (LPLA).

Citi Global Markets analyst William Katz Research initiated coverage of LPL Investment Holdings with a $32 price target. In a note sent to investors, Katz pointed to LPL’s 20% appreciation since its Nov. 18 IPO.

“While there is building market/economic momentum, we believe the bull case is already factored and the premium valuation may decay post IPO excitement," he explained in his report.

Last Tuesday, UBS analyst Alex Kramm issued his coverage of LPL with a 'neutral' rating.

His 12-month price target for the company is $38.

Kramm believes it could take “several quarters of delivering on core drivers of future growth (expected to be 20%+ in the medium term) for LPL to get full credit from investors,” he wrote in his Dec. 28 report. He also notes that advisor growth has been slower than historical averages over the last couple of years.

LPL Financial had 12,017 financial advisors as of Sept. 30, 2010, down 10 from the Sept. 30, 2009.

Also on Dec. 28, William Blair equity analyst Mark Lane issued his first report on LPL with an "outperform" rating. This helped push the broker-dealer’s stock past $35 for the first time, and it closed on Tuesday at $35.68.

Last week, the stock began trading on Monday at $34.77. It ended trading on Friday at $36.37, after it hit an inter-day high of $37.22.

Lane estimates the company would generate adjusted EPS of $1.65 in 2010, $1.75 in 2011, and $2.25 in 2012.

“We believe the company has the ability to produce close to 20% earnings growth over the next few years without any material benefit from higher short-term interest rates or acquisitions,” Lane explained in the report.

“While we feel strongly about the prospects for the continued movement toward independent firms, the movement tends to be more cyclical, and LPL’s advisor headcount has been under some pressure during 2010 as stability at the wirehouses has improved,” he added.

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