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High Costs to Hurt Interactive Brokers' Profits: Time to Sell?

Zacks Equity Research
·3 min read

On Jun 8, 2020, we issued an updated research report on Interactive Brokers Group, Inc. IBKR. Elevated expenses and lower interest rates are major near-term concerns for the company.

Notably, since 2017, Interactive Brokers has been working to wind down its Market Making segment and focus more on the Electronic Brokerage segment. In April 2020, the company announced that its market-making activities were almost insignificant and hence decided not to report business through two separate segments.

The Zacks Consensus Estimate for its current-year earnings has been revised 15.5% lower over the past 60 days. Thus, the company currently carries a Zacks Rank #5 (Strong Sell).

Moreover, Interactive Brokers’ price performance does not seem impressive. Its shares have lost 3% in the past six months compared with the industry’s decline of 3.2%.

Looking at fundamentals, over the last four years (2016-2019), the company’s expenses saw a CAGR of 7.1%. The increase was mainly due to higher execution, clearing and distribution fees. The uptrend continued in the first quarter of 2020. As the company continues to invest in franchise and upgrades technology, costs are anticipated to remain elevated.

Moreover, near-zero interest rates amid the Federal Reserve’s accommodative policy stance will likely hurt revenues to some extent in the near term.

Nevertheless, low level of compensation expense, development of proprietary software and increasing emerging market customers are expected to keep supporting Interactive Brokers’ top line in the quarters ahead.

A few stocks from the finance space worth a look are mentioned below.

Merchants Bancorp’s MBIN current-year earnings estimates have moved upward by 11.9% over the past 60 days. The stock has appreciated 3.1% over the past six months. It currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

GAIN Capital Holdings’ GCAP current-year earnings estimates have moved up significantly over the past 60 days. Further, the company’s shares have gained 45.3% over the past six months. At present, it carries a Zacks Rank of 2.

West Bancorporation’s WTBA current-year earnings estimates have moved up 13.9% over the past 60 days. The company’s shares have declined 19.1% over the past six months. At present, it sports a Zacks Rank of 1.

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Interactive Brokers Group, Inc. (IBKR) : Free Stock Analysis Report
GAIN Capital Holdings, Inc. (GCAP) : Free Stock Analysis Report
West Bancorporation (WTBA) : Free Stock Analysis Report
Merchants Bancorp (MBIN) : Free Stock Analysis Report
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Zacks Investment Research