We previously analyzed and evaluated how LPL Financial (LPLA) was formed, as well as the growing pains that it is going through with regards to its Q2 2012 results. Because we have been long-time followers of the company and we have been shocked that LPL Financial’s stock has been such a poor and inconsistent performer, even taking into account the acquisition indigestion the company has been facing. In this report, we will be comparing LPL Financial against a number of its securities brokerage peers. The brokerage peers we will compare LPLA against include Raymond James Financial (RJF), Charles Schwab & Company (SCHW), Stifel Financial (SF), Interactive Brokers (IBKR), TD Ameritrade (AMTD) and Interactive Brokers (IBKR).
We first compared LPLA’s premium to book value and we found that LPLA had by far and away the highest Price to Book Value within its brokerage firm peer group. We could not even calculate a relevant Price to Tangible Book Value for LPLA because it has negative tangible book value to due to the acquisitions, including the effect of the 2005 Private Equity acquisition of 60% of LPLA’s stock. We then compared its return on equity against its peers and we found that while it had the second highest adjusted ROE within the peer group at 14.5%, the other brokers generated a median ROE of 11.7%. We think that LPL’s P/B is too high relative to its peers especially in conjunction with the difference in ROE. Plus only TD Ameritrade has had as significant a disparity in book value and tangible book value as LPL. We have noted that LPL and TD Ameritrade do have the highest ROA’s relative to the peer group though.
Next, we will compare its most recent earnings surprise relative to its peers. We found that LPL’s most recent quarterly adjusted EPS of $.45 missed the consensus estimates of $.52 per share and was a decline of 5.8% versus the prior year’s comparable quarter. On a Year-To-Date basis, the company has seen its adjusted EPS eke out a 1% increase versus the prior year’s comparable period. We were concerned that the company was seeing company related underperformance but after this analysis, we found that LPL is not the only company that is seeing EPS declined due to the weak macroeconomic environment impacting the worldwide capital markets.
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