LPL Financial: The Company Is Undervalued and Should Soon Catch Up to Peers

LPL Financial and multiple other wealth-management firms sold off during second-quarter earnings season because of concerns over whether they would be increasing the rate that they pay on cash sweep accounts. Client cash-related revenue, whether from net interest income or third-party bank fees, has been a significant driver of both revenue and earnings for wealth-management firms since the global financial crisis. While the stock prices of wealth-management firms have recovered since second-quarter earnings season, partly due to gains in the overall stock market and belief that the incoming US presidential administration will be positive for the financial sector, LPL Financial's stock has underperformed peers. We believe that LPL Financial's stock price should close the approximately 15-percentage-point gap to peers when client cash-related revenue uncertainty fully abates.