Company commences coverage of the newly listed B-D with a 'sell' rating
Citigroup Inc. has put a damper on the coming-out party Wall Street has thrown for LPL Investment Holdings Inc.
Yesterday, Citigroup's brokerage, Citigroup Global Markets Inc., began its coverage of the company with a “sell” rating, which is in stark contrast to the enthusiastic ratings and stock price targets Wall Street investment banks bestowed on LPL last week.
Citigroup, which was a co-manager of the LPL offering but was not a book runner, set a 12-month price target of $32 per share for the brokerage. The stock, which made its debut in November and trades under the ticker symbol LPLA, was selling at a shade under $34 per share Tuesday afternoon. The stock price spiked at $37.22 in late December.
“Given the sizable run-up in the stock since its [initial public offering], we ran two stress tests to see how much ‘good news' is already discounted,” wrote the analyst, William Katz. “Our analysis suggests investors already discount above trend equity markets and 250 [basis points] of rate hikes by [the end of next year], well ahead of most consensus expectations. We are inclined to book profits.”
The $32 price target works out to about 15 times LPL's earnings-per-share estimate for LPL by Citigroup, Mr. Katz noted. At current prices, the stock is expensive, he wrote. The company “already commands among the highest valuations across our coverage universe, which may not be fully sustainable.”
“Our initial rating is a valuation call, as LPLA appears priced for perfection out of the IPO gates and subject to a pullback, we believe,” Mr. Katz wrote. “Long-term, we like LPLA's positioning within the fast[er-]growing independent channel, superior economics LPLA offers embedded [financial advisers], and that the model can be leveraged and that [free cash flow] should drive further deleveraging.
When asked about the rating, LPL spokesman Michael Herely said that as a matter of policy, the company does not comment on sell-side research reports about the brokerage.
There's been plenty of that of late. Last week, a number of investment banks that were involved in the IPO issued initial ratings on the indie B-D.
The Goldman Sachs Group Inc., one of LPL's lead underwriters, issued a “buy” rating on the company, with a $40 price target, according to StreetInsider.com, a website that tracks stock ratings and financial information. Co-manager William Blair & Co. LLC rated LPL “outperform,” and J.P. Morgan Securities Inc., another book runner on the deal, started coverage with a “neutral” rating — but a price target of $38.50.
LPL's stock launched at a price of $30 per share.
