13 Best & Worst Broker-Dealers: Q1 Earnings, 2019

While analysts were cautious about financial companies’ prospects for strong earnings in the first quarter of 2019, most broker-dealers reported robust results.

“We consider first-quarter earnings season a success based on the upside surprise and resilience of estimates for the rest of this year,” said John Lynch, chief investment strategist for LPL Financial, in a recent report.

“It appears an earnings recession has been averted and better earnings days lie ahead, though trade uncertainty is a huge wild card,” Lynch explained.

With results from more than 90% of S&P 500 companies, Q1’19 earnings — which were projected to be negative — have been fairly flat with Q1’18. “While flat earnings don’t sound impressive, we consider it a victory given consensus estimates were calling for a 4–5% decline when earnings season began,” Lynch explained.

According to the research group FactSet, the financial sector had the best jump in sales of any industry: “The blended (year-over-year) revenue growth rate for Q1 2019 of 5.3% is above the estimate of 4.9% at the end of the first quarter (March 31).”

In addition, seven sectors have made upward revisions to revenue estimates and anticipate positive revenue surprises, “led by the financials (to 7.8% from 5.1%) and energy (to -0.3% from -2.3%) sectors,” FactSet said in a May 10 report.

For broker-dealers, some important tailwinds include the expanding market for retail investing — which Cerulli Associates predicts will grow to $32 trillion in 2022 from $27 trillion today. The advice-mediated segment is set to jump to $24 trillion from $20 trillion over this period, the research and consulting group says.

Many broker-dealers are adding technology and services to help them take advantage of these trends. LPL, for instance, said it would boost tech spending to $150 million this year; it also plans to add an employee option to help it recruit wirehouse and other non-independent advisors.

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