LPL Financial: Increasing Our Fair Value Estimate; Client Asset Growth to Offset Rate Headwind

We are increasing our fair value estimate for narrow-moat LPL Financial to $311 from $289 per share. Our fair value estimate correlates to a price/forward adjusted earnings multiple of 16 times and an enterprise value/EBITDA multiple of 12.5 times. About half of the increase is from earnings since our previous valuation update and the other half is from miscellaneous adjustments to our model. While lower interest rates are a headwind for the financial sector, we still forecast LPL growing gross profit in the mid- to high-single-digit percentage range for the foreseeable future. We believe the growth will be from onboarding about $150 billion of client assets related to Prudential and Atria, which is more than 10% of client assets LPL had on its platform at the end of 2023, and client cash balances increasing from recently low levels.