Bank of America says this brokerage stock is cheap and has 50% upside
Bank of America thinks it’s the right time for investors to scoop up shares of Interactive Brokers after its earnings topped analyst estimates earlier this week. The bank has a buy rating on the global electronic brokerage firm, and its $128 price target suggests shares could jump roughly 54% from its latest closing price. “IBKR has the strongest organic growth prospects in our coverage through its broad offering for active traders, retail, brokers, financial advisors, hedge funds and prop traders globally,” analyst Craig Siegenthaler wrote in a Wednesday note, referring to proprietary trading . Interactive’s “key competitive advantage is its technology R & D effort which supports its first-mover advantages with new capabilities, lower product price points and a 70%+ operating margin.” Siegenthaler said Interactive is “cheap,” adding he’s particularly bullish on the company’s potential upside after it exceeded Wall Street’s earnings expectations earlier this week. IBKR YTD mountain Interactive Brokers in 2023. Interactive Brokers posted third-quarter adjusted earnings of $1.55 per share on adjusted revenue of $1.14 billion postmarket Tuesday, while analysts polled by LSEG had called for earnings of $1.51 per share and $1.11 billion in revenue. “We think that IBKR should trade closer to the valuations of the e-trading platforms … given its secular growth qualities and diversified profit stream (diversification of net interest revenue versus commissions),” Siegenthaler said. The analyst listed three reasons he particularly favors Interactive Brokers: The stock as “cheap,” trading at 11 times the bank’s 2025 earnings-per-share estimate. The stock has 24% upside potential to its 2025 consensus EPS. Interactive will “continue to generate strong organic growth,” and grew 34% on average from 2017 to 2022. Siegenthaler added that after Interactive Brokers’ chairman Thomas Peterffy lowered the company’s intermediate-term account growth target to 20% from 30% during its earnings call this week, he thinks expectations on the company’s account inflows are back to a level that it can “beat in most quarters.” To be sure, the analyst noted that the stock has been a difficult play for long-term investors to own, given the company’s large-cap market cap coupled with lack of stock liquidity, visibility into succession plan and capital retention, among other factors. “Alternatively, given the mostly hedge fund interest in IBKR, we think that a bull market or an improvement in these factors could unlock significant valuation upside potential for IBKR stock,” Siegenthaler said.
