Despite the Fed’s announcement on July 29 that it will keep benchmark interest rates near zero and its bond-buying program unchanged for now, the financial sector has been witnessing a steady recovery on the back of increasing financial transactions and capital market activities. Companies in this space are benefiting primarily from the growing non-interest-revenue components of their revenues.
Adding to the positives, the Federal Reserve has signaled two interest rate hikes as soon as late 2023, a year earlier than anticipated, which should help financial companies expand their interest income. Also, the sector is expected to grow with the integration of advanced technologies in business operations. According to a Globe Newswire report, the global financial services market is expected to grow at a 9.9% CAGR to $22.5 trillion this year.
Given the sector’s promising prospects, Wall Street analysts are highly optimistic about the growth potential of The Charles Schwab Corporation (SCHW), Raymond James Financial, Inc. (RJF), and LPL Financial Holdings Inc. (LPLA). So, we think it could be worth adding these names to one’s watchlist now.
The Charles Schwab Corporation (SCHW)
Headquartered in Westlake, Tex., SCHW is a popular financial services company that provides wealth management, securities brokerage, banking, asset management, custody, and financial advisory services. It operates through two segments: Investor Services and Advisor Services. Its product offerings include brokerage, mutual funds, exchange-traded funds (ETFs), advice solutions, banking, and trust.
On June 23, 2021, SCHW announced that its new digital onboarding capabilities would be available to independent advisor clients beginning July 2021. Andrew Salesky, SCHW’s managing director, said, “This is a major milestone in our efforts to provide the fastest, most secure way for advisors to onboard new and existing clients.”
SCHW’s net revenues increased 84.8% year-over-year to $4.53 billion for the second quarter, ended June 30, 2021. Its trading revenue for the quarter came in at $955 million, up 394.8% year-over-year. Its non-GAAP net income came in at $1.48 billion, representing a 99.9% year-over-year rise. SCHW’s non-GAAP EPS increased 29.6% year-over-year to $0.70.
The company’s EPS is expected to increase 54.9% year-over-year to $0.79 for the quarter ending September 30, 2021. In addition, it surpassed the consensus EPS estimates in each of the trailing four quarters. Its revenue is expected to be $18.20 billion in its fiscal year 2021, representing a 55.6% year-over-year rise. The stock has soared 102.2% over the past year to close yesterday’s trading session at $67.41.
Wall Street analysts expect the stock to hit $85.30 in the near term, which indicates a potential upside of 26.5%.
Raymond James Financial, Inc. (RJF)
RJF provides underwriting, distribution, trading, and brokerage of equity and debt securities in the United States, Canada, and Europe. It operates in five segments: Private Client Group; Capital Markets; Asset Management; RJ Bank; and Other segments. RJF is based in St. Petersburg, Fla.
In May RJF agreed to acquire Cebile Capital, a leading private fund placement agent and secondary market advisor to private equity firms. The acquisition reflects the company’s emphasis on growing its investment banking business.
The company’s net revenues increased 35% year-over-year to $2.47 billion for its fiscal third quarter, ended June 30, 2021. Its adjusted pre-tax income grew 147% year-over-year to $490 million. Its adjusted net income increased 124% year-over-year to $386 million. And its adjusted EPS increased 123% year-over-year to $2.74.
Analysts expect RJF’s EPS and revenue to increase 51.4% and 17.5%, respectively, year-over-year to $9.25 and $9.38 billion in its fiscal year 2021. In addition, it surpassed the Street EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 81.3% to close yesterday’s trading session at $129.52.
Wall Street analysts expect the stock to hit $159 in the near term, which indicates a potential upside of 22.8%.
LPL Financial Holdings Inc. (LPLA)
LPLA in Boston provides an integrated platform of brokerage and investment advisory services to independent financial advisors and financial advisors. Its brokerage offerings include mutual funds, equities, fixed income, and insurance. The company also provides advisory platforms that access mutual funds, exchange-traded funds, stocks, and bonds.
On August 2 LPLA lowered the investment minimum in its Optimum Market Portfolios platform, reducing the amount from $10,000 down to $1,000. This change allows advisors to offer advisory services to a more extensive range of clients, giving those with lower investable assets access to professionally managed asset allocation models.
LPLA’s gross profit increased 23% year-over-year to $602 million for the fiscal second quarter, ended June 30, 2021. Its EBITDA grew 18% year-over-year to $243 million. Its net income increased 17% year-over-year to $119 million. And the company’s EPS increased 15% year-over-year to $1.46.
For the quarter ending September 30, 2021, analysts expect LPLA’s EPS and revenue to increase 29.2% and 28.7%, respectively, year-over-year to $1.86 and $1.88 billion. In addition, it surpassed the consensus EPS estimates in each of the trailing four quarters. The stock has gained 70.1% over the past year to close yesterday’s trading session at $136.95.
Wall Street analysts expect the stock to hit $191.50 in the near term, which indicates a potential upside of 39.8%.
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SCHW shares were trading at $68.21 per share on Wednesday morning, up $0.80 (+1.19%). Year-to-date, SCHW has gained 29.35%, versus a 18.24% rise in the benchmark S&P 500 index during the same period.
About the Author: Nimesh Jaiswal
Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles. More...
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