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LPL Shares Bounce Back, but Outlook Is Mixed

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After a rough Friday, shares of LPL Financial (LPLA) are having what some Wall Streeters call a “dead cat bounce.”

The shares are up about 19% on Tuesday, trading around $19.60, after dropping 35% on the last trading day before the Presidents Day weekend to end the day at $15.50.

The independent broker-dealer’s sharp fall came one day after it reported a 45% decline in profits for the fourth quarter. Also, early on Friday, Credit Suisse gave the stock a $28 price target, down from its earlier target of $44.

On Tuesday, William Blair equity analysts issued a report that sharply reduces earnings and sales estimates for the IBD this year and next.

They now believe that LPL will have earnings per share of $1.52 in 2016 and $1.89 in 2017, much more pessimistic than its earlier estimates of $2.35 for 2016 and $2.57 for 2017.

Likewise, the group has dropped its estimates for yearly sales to $3.96 billion for 2016 and $4.00 billion for 2017 vs. earlier estimates of $4.31 billion for 2016 and $4.26 billion for 2017. In 2015, LPL’s full-year sales were about $4.28 billion.

“We assume two [federal funds rate] increases in the next two years …,” wrote Christopher Shutler in a note on Tuesday. “We also assume continued declines in alternative asset sales and broader pressure on commissions (and some pickup in advisory assets as a result) as advisors increasingly shy away from more expensive products such as variable annuities.”

Still, the William Blair team says it maintains its Market Perform rating on LPL “based on uncertainty around the eventual impact of the [Department of Labor] fiduciary standard.”

The independent broker-dealer’s latest gross profit of $322 million “was $12 million below our estimate ($0.07 EPS impact) due to a combination of items but particularly lower alternative investment revenues,” the analysts said in their note issued early Friday. 

“The fourth quarter brought greater challenges,” said Chairman & CEO Mark Casady on a call with analysts late Thursday. “Brokerage sales were the slowest for the year and advisory fees were down due to the equity market decline at the end of the third quarter. Alternative investments were a large factor, as commissions were down by about 75% from a year ago.”

Total affiliated advisor headcount was 14,054 as of Dec. 31, representing a net gain of just 18 advisors for 2015. By contrast, 540 reps signed on with the IBD in 2014. It added a net 321 FAs in 2013, net 505 in 2012 and net 549 in 2011.

Furthermore, average fees and commissions per advisor declined in 2015 to $236,000 from $250,000 in 2014 and $242,000 in 2013. On the upside, LPL did boost the level of assets on its hybrid RIA platform year over year to $118.7 billion from $90.8 billion.

— Check out LPL Shares Tank on Downgrade, 45% Profit Drop in Q4 on ThinkAdvisor.


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