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Interactive Brokers (IBKR) Up 0.3% Since Last Earnings Report: Can It Continue?

A month has gone by since the last earnings report for Interactive Brokers (IBKR). Shares have added about 0.3% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Interactive Brokers due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Interactive Brokers Beats on Q3 Earnings, Costs Rise

Interactive Brokers released third-quarter 2018 results. Earnings per share of 51 cents surpassed the Zacks Consensus Estimate of 49 cents. Also, the figure was higher than the prior-year quarter's earnings of 43 cents per share.

Results benefited from an improvement in revenues and rise in DARTs. Further, the Electronic Brokerage segment continued to perform decently. However, higher expenses were a headwind.

The company reported comprehensive income available to common shareholders of $38 million or 50 cents per share, up from $32 million or 44 cents per share reported in the prior-year quarter.

Revenues Improve, Expenses Rise

Total net revenues increased 3.1% year over year to $439 million. The rise was primarily driven by increase in commission fees and interest income, partially offset by lower trading gains, fall in other income and higher interest expenses. However, the figure lagged the Zacks Consensus Estimate of $453 million.

Total non-interest expenses increased 3.2% from the year-ago quarter to $163 million. The increase was primarily due to higher general and administrative costs.

Income before income taxes was $276 million in the quarter, up from $268 million in the prior-year quarter. Pre-tax profit margin was 63%, in line with the prior-year quarter.

Quarterly Segment Performance

Electronic Brokerage: Net revenues increased 21% year over year to $444 million. Pre-tax income rose 29.8% to $292 million. Total DARTs for cleared and execution-only customers were 763,000, up 10% from the year-ago quarter. Pre-tax profit margin improved to 66% from 61% in the prior-year quarter.

Market Making: Net revenues were $16 million, down from $30 million recorded in the prior-year quarter. Pre-tax income was $7 million, down 36.4% year over year. Pre-tax profit margin was 44% compared with 37% in the year-ago quarter.

The Corporate segment reported negative revenues of $21 million compared with revenues of $29 million in the year-ago quarter. Pre-tax loss was $23 million compared with pre-tax income of $32 million a year ago.

Capital Position

As of Sep 30, 2018, cash and cash equivalents (including cash and securities set aside for regulatory purposes) totaled $23.4 billion compared with $22 billion as of Dec 31, 2017. As of Sep 30, 2018, total assets amounted to $62.1 billion compared with $61.2 billion as of Dec 31, 2017. Total equity was $6.9 billion compared with $6.4 billion at the end of December 2017.

Outlook

As the increase in the Fed funds target rates will benefit net interest income (NII), Interactive Brokers expects to produce an additional $19.5 million in NII over the next four quarters, with another 25 basis points rise in overnight interest rates.

Further, as a result of the discontinuation of its options market making activities, the company expects nearly $40 million in net expenses annually to be absorbed by the Electronic Brokerage segment.

How Have Estimates Been Moving Since Then?

Fresh estimates followed a downward path over the past two months.

VGM Scores

At this time, Interactive Brokers has a nice Growth Score of B, a grade with the same score on the momentum front. However, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Interactive Brokers has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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