On Aug 23, 2013, we reiterated our long-term recommendation on
Interactive Brokers Group, Inc.
) at Neutral based on its steady second-quarter earnings and
continuous capital deployment activities. However, we remain
concerned about the company's Market Making segment's ability to
consistently generate sufficient returns to fund dividend
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Why the Neutral Stance?
Interactive Brokers' second-quarter 2013 earnings came in at 21
cents per share, in line with the Zacks Consensus Estimate.
Results were primarily aided by increased top line and a decline
in operating expenses.
The Zacks Consensus Estimate for 2013 remained stable at 73 cents
per share over the last 30 days. Also, for 2014, the Zacks
Consensus Estimate remained unchanged to $1.13 per share over the
same time frame. Therefore, the company carries a Zacks Rank #3
Interactive Brokers' global presence - especially in the fast
growing markets of Taiwan, Mexico and India - is expected to be a
major growth driver. Further, the company has been a pioneer in
the field of developing and applying technology as a financial
intermediary in the capital markets in which it operates.
Moreover, InteractiveBrokers' robust capital base and liquid
balance sheet with a low leverage set it apart from its
competitors. Further, the company's consistent capital deployment
activities are expected to boost shareholders' confidence.
However, Interactive Brokers is exposed to certain risks related
to its international operations. The company is exposed to
uncertainty related to political, economic and financial
instability, sudden changes in regulatory requirements, trade
barriers, exchange-rate fluctuations and applicable currency
controls due to its exposure to the international markets.
Moreover, increasing number of high frequency trading firms
(HFTs) are resulting in additional competition for the Market
Making segment of the company. This is because of unregistered
HFTs are not exposed to all the regulatory restrictions, which
are applicable to the registered market makers. This leads to
faster and cheaper trades on some exchanges by these HFTs, which
could take a toll on Interactive Brokers' business going forward.
Other Major Banks to consider
Some better performing banks worth a look include
GAIN Capital Holdings, Inc
TD Ameritrade Holding Corporation
) with a Zacks Rank #1 (Strong Buy) and
E*TRADE Financial Corporation
) with a Zacks Rank #2 (Buy).