Bank of America believes it’s the right time for investors to buy shares of Interactive Brokers after earnings beat analysts’ estimates earlier this week. The bank has a “buy” rating on the global electronic brokerage firm and its $128 price target suggests the stock could rise about 54% from its last closing price. “IBKR has the strongest organic growth prospects in our coverage through its broad offering to active traders, retail traders, brokers, financial advisors, hedge funds and prop traders worldwide,” analyst Craig Siegenthaler wrote in a note Wednesday, referring to proprietary trading. Interactive’s “key competitive advantage is its technology R&D efforts, which support its first-mover advantages through new features, lower product prices and an operating margin of over 70%.” Siegenthaler called Interactive Brokers “cheap” and added that he was particularly optimistic, on the company’s upside potential after beating Wall Street’s earnings expectations earlier this week. IBKR YTD Mountain Interactive Brokers in 2023. Interactive Brokers reported third-quarter adjusted earnings of $1.55 per share on adjusted revenue of $1.14 billion after the market on Tuesday, while LSEG said earlier As Refinitiv, analysts polled had called for a profit of $1.51 per share and $1.11 per share on billions in sales. “We think IBKR should trade closer to the valuations of the e-trading platforms… given its long-term growth qualities and diversified profit streams (diversification of net interest income versus commissions),” Siegenthaler said. The analyst cited three reasons why he particularly favors Interactive Brokers: The stock is “cheap” and trades at 11 times the bank’s estimate for 2025 earnings per share. The stock has 24% upside potential from its consensus 2025 EPS. Interactive will “continue to generate strong organic growth” and grew by an average of 34% between 2017 and 2022. Siegenthaler added that Thomas Peterffy, chairman of Interactive Brokers, lowered the company’s medium-term account growth target to 20% from 30% during the profit margin. On a call this week, he expects expectations for the company’s account inflows to rebound at a level that it can “exceed in most quarters.” The analyst noted that it is difficult for long-term investors to own the stock due to the company’s high market capitalization as well as a lack of stock liquidity, transparency in succession planning and capital preservation, among other issues. “Alternatively, given the preponderance of hedge fund interest in IBKR, we believe a bull market or improvement in these factors could unlock significant valuation potential for IBKR stock,” Siegenthaler said.
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October 27, 2023
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