LPLA - Embedded Expectations Analysis - 2021 03 04
LPL Financial Holdings Inc. (LPLA:USA) currently trades near corporate averages relative to UAFRS-based (Uniform) earnings, with a 22.6x Uniform P/E, implying bearish expectations for the firm. However, given management's confidence about automation, the Waddell & Reed acquisition, and their value proposition, market expectations are overly bearish, suggesting outperformance remains warrantedSpecifically, management is confident there are opportunities to continue to drive automation into adviser workflows, free up time for more valuable adviser activities, and drive growth by leveraging their business solutions. In addition, they are confident the Waddell & Reed acquisition will close and convert assets in the second quarter, they have a strong and competitive value proposition due to their capabilities, technology and service, and that their commission advisory fees were up $11 million from Q3. Furthermore, they are confident their integration work is progressing well, organic growth will improve along with their recruiting success, and the closing and subsequent asset transfer from Waddell will fully reach their estimated run-rate EBITDA around 12 months after closing
Given management's confidence about automation, the Waddell & Reed acquisition, and their value proposition, market expectations are overly bearish and equity upside is warranted for LPLA
LPL Financial Holdings is a holding company. Through its subsidiaries, the company is engaged in the retail financial advice market and independent broker-dealer. The company's product and solution access includes: Commission-Based Products, which include variable and fixed annuities, mutual funds, equities, and insurance, among others; Fee-Based Advisory Platforms and Support, which include wrap-fee programs, mutual fund asset allocation programs, financial planning services, and retirement plan consulting services; and Cash Sweep Programs, which manage their clients' cash balances through a money market sweep vehicle involving money market fund providers and insured sweep vehicles involving banks.
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