Is LPL Financial a Buy?|The Motley Fool
LPL Financial (NASDAQ: LPLA)– the biggest independent broker-dealer in the U.S.– has actually silently published strong returns for investors over the past few years. Last year the stock returned 14.6%, surpassing the monetary sector, and this year it is up about 24% year to date, buoyed by a significant acquisition and several brand-new customers that it employed.
With a solid 4th quarter under its belt– in addition to some major investments and acquisitions that should stimulate growth down the roadway– is LPL Financial a buy?
LPL is the biggest independent broker-dealer in the U.S., practically twice as huge as its next-largest rival in terms of annual revenue. LPL called $5.9 billion in net sales last year, a 4% gain from the year before. In the 4th quarter, earnings rose 9% to $1.6 billion. Possessions grew 18% year over year to $903 billion, with natural possessions not from acquisitions up 8.8% year over year.
As an independent broker-dealer, LPL’s financial advisors are not tied to a specific Wall Street investment company, like Morgan Stanley, for instance. As such, LPL advisors can choose to suggest a broader swath of items and services than those connected to the major wirehouses.
LPL will grow its market show the acquisition of rival Waddell & Reed’s wealth management organization, the 10th-largest independent broker-dealer in regards to annual income. Macquarie Property Management bought Waddell & Reed on Dec. 2, then turned around and sold the broker-dealer service to LPL for $300 million. Waddell & Reed will bring over about $70 billion in broker-dealer possessions when the offer closes in mid-2021, including to LPL’s $903 billion. About 80% of Waddell & Reed’s customers have actually currently agreed to move to LPL. As part of the offer, Macquarie will end up being a tactical asset management partner of LPL and the 2 will “explore additional long-term opportunities together,” LPL CEO Dan Arnold stated.
LPL likewise purchased 2 smaller shops in 2020: E.K. Riley, a broker-dealer with $2 billion in possessions, and Lucia Securities, an advisor with $1.5 billion in customer possessions.
In late 2020, LPL gave its platform the brokerage and advisor teams and properties of 2 banks. Initially, it signed an agreement with M&T Bank to outsource its retail brokerage and advisory company, called M&T Securities, to LPL. “LPL is able to provide remarkable technology at the scale and rate that will assist us distinguish our services and deepen our relationships with clients,” stated Matt McAfee, head of M&T Affluent Wealth Markets.
Likewise in October, LPL signed a comparable deal with BMO Harris Bank to run its retail brokerage and advisory company. BMO Harris Financial Advisors will cause $14 billion in brokerage and advisory properties and 115 monetary advisors onto LPL’s platform. Both of these offers will work in mid-2021.
In an attempt to further expand its market, the company launched LPL Strategic Wealth Services last April, which allows consultants to work as independent specialists for LPL, using its platform while preserving their own companies. Arnold said the service will expand LPL’s addressable market from $4 trillion to $13 trillion and add to organic growth in 2021.
LPL is clearly a company in development mode as it aims to increase its market share with an aggressive acquisition technique in addition to new initiatives to stimulate natural growth. Is it a buy? The price-to-earnings ratio is a bit high at around 23 with a price-to-book ratio of around 8, based on a nearly 28% run-up this year, due perhaps to all the moves LPL has made.
But LPL has a consistent history of revenue increases, and these brand-new moves, when they close and are integrated, should strengthen LPL’s position as a market leader. I ‘d probably hold back a quarter to purchase, however this definitely looks like a stock to consider.