LPLA - Embedded Expectations Analysis - 2021 05 20
LPL Financial Holdings Inc. (LPLA:USA) currently trades near corporate averages relative to UAFRS-based (Uniform) earnings, with a 22.2x Uniform P/E. Even at these levels, the market is pricing in bearish expectations for the firm. However, given management's confidence about advisor workflow efficiency, accretive large financial institution transactions, and M&A insights, market expectations are overly bearish, suggesting outperformance remains warrantedSpecifically, management is confident they will apply M&A insights and learnings for better business execution in the future and that they focused on enhancing the administrative support around tax season. Moreover, they are confident they can create efficient workflows for their advisors and that they can give them the tools necessary to pivot their businesses into a multichannel model. Management is also confident large financial institution contracts are carefully negotiated and that brokerage assets typically constitute more of a large financial institution's portfolio. Additionally, they are confident the dynamics in advisory assets are similar, even if they are not centrally managed, and that their depreciation and amortization was largely driven by technology spend
Given management's confidence about advisor workflows, large financial institution transactions, and M&A insights, 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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