LPL In Buy Range After Better-Than-Expected Q4 Report

Shares of LPL NASDAQ: LPLA closed 4.79% higher Friday, at $181.24, following better-than-expected fourth-quarter results.

The San Diego-based brokerage and investment advisor earned $1.63 per share on revenue of $2.094 billion, year-over-year increases of 7% and 32%, respectively. The company beat analysts’ views on the top and bottom lines.

Despite the improved revenue - driven in part by market appreciation in the quarter - LPL’s expenses also rose, chipping away at earnings. Nonetheless, the firm’s balance sheet looks strong, and investors cheered the results.

According to MarketBeat earnings data, LPL has a history of topping Wall Street earnings views going back to 2016. So that part of the report was not necessarily a big surprise. 

Key metrics from the report include:

• Gross profit increased 20% year-over-year to $643 million
• Total advisory and brokerage assets increased 34% year-over-year to $1.21 trillion. 
• Advisory assets increased 39% year-over-year to $643 billion.
• Organic net new advisory assets were $24 billion, translating to 16% annualized growth.
• Organic net new brokerage assets were $2 billion, translating to 1% annualized growth.
• Recruited assets for the year were $89 billion, more than double a year ago.

LPL has a market capitalization of $14.53 billion, putting it at the lower end of the large-cap categorization. Since rebounding from the 2020 correction in April of that year, the stock is up 200%. In the past 12 months, LPL returned 54.47%. 

The current annual dividend per share is 1%. That has held constant since 2015. 

The stock formed a second-stage flat base, beginning in late October. It cleared that consolidation in early January, but retreated as the broader market also pulled back. However, LPL found support at its 200-day moving average, suggesting that institutional investors (and their algorithms) stepped in to support the stock at a slightly lower valuation. In addition, the low of the most recent pullback stayed above the prior structure low, another indication of investor confidence. 

LPL remains in buy range, as the closing price Friday was below the January 11 intraday high of $181.92. Trading volume on Friday was 152% higher than average, exactly what you want to see as the price rises after a better-than-expected report. 

In the earnings call, CEO Dan Arnold emphasized the role of financial advisors in the recent growth. He discussed the addition of advisors from other brokerages, which contributed to the total of assets under management, as well as revenue. 

“Large financial institutions were a new source of recruiting in 2021 with the addition of BMO Harris and M&T and will continue to contribute this year with the planned onboarding of CUNA,” he said. “Our insights and progress over the last 18 months have led to the continued enhancement of our value proposition. And consequently, our demand and pipeline in this market continue to build. Given our experience and more seasoned view from this work, we see large financial institutions as a more accessible market opportunity for us and another new and distinct affiliation model that can drive sustainable organic growth over time.”

Although it’s not part of the S&P 500, it’s worth viewing LPL’s performance through a sector lens. The financials sector advanced 29.86% in the past year, trailing only energy. 

So far in 2022, those two sectors are the only ones showing a gain. Financials are up 2.69% while energy is trouncing all sectors, with a return of 24.14%. 

The top five financial performers in 2022 are:

Wells Fargo NYSE: WFC: +17.40%

M&T Bank NYSE: MTB: +16.92%

People's United Financial NASDAQ: PBCT:  +15.54%

Citizens Financial Group NYSE: CFG: +14.39%

American Express NYSE: AXP: +13.60%

With earnings season under way, positive earnings surprises by companies in the financials sector helped boost price increases among sector components.

According to researcher FactSet, 71% of financials topped Wall Street estimates for the fourth quarter.