LaBranche Ready To Bloom
Forbes.com
By Tara Murphy
biz.yahoo.com
It's just as important to prepare for the best of times, as it is for the worst, and when the U.S. economy stages a comeback, LaBranche will be a sure-fire winner in the portfolio.
If historical trends repeat themselves, the New York Stock Exchange's biggest specialist firm stands to get a leg up as consumer and stock market confidence resumes. Specialists work trading posts on the floor, managing a fair and orderly market for the stocks they trade.
Although the Sept. 11 terrorist attacks have delayed economic recovery until the first half of 2002, trading volatility has increased, and that could make for better fiscal 2002 earnings. At $23, LaBranche's stock trades at just 13 times the fiscal 2002 earnings estimate of $1.74 per share.
"If the market is stable to moving upward, and volume remains healthy the way it has today, there could be upside potential to next year's estimates," says Robert Napoli, analyst at ABN Amro, who has an "add" rating and 12- to 18-month price target of $40 on the stock.
When a recession approaches its trough, or lowest point, and U.S. consumer confidence is rejuvenated, brokerage-oriented stocks will take off, says Napoli, who points out that a favorable outcome to the current U.S. military campaign against terrorism also would be a catalyst that would drive the shares higher.
"If you go back to historical recessions, you would see substantial out-performance of the brokerage group, and we would put LaBranche to perform pretty much in line with that stock process," says Napoli.
During the second quarter, LaBranche still eked out year-over-year revenue growth of 29%, despite the falloff in trading volume and decimalization's negative effect on spreads. Meanwhile, the acquisition-hungry firm, which purchased Henderson Brothers in 2000 and Robert Peck McCooey in 2001, continued its buying spree on the NYSE floor, with Bocklet & Co. , the tenth-largest specialist firm.
Despite its ability to weather weakness, the firm won't be unscathed in the near-term, saying third-quarter revenue from principal transactions will resemble last year's figure of $81 million, a sequential decline from the 2001 second-quarter report of $113 million.
On Sept. 27, Napoli cut his fiscal 2001 earnings-per-share estimates to 97 cents from $1.13, and its fiscal 2002 to $1.65 from $2.00. He also lowered his third-quarter numbers to 7 cents from 15 cents, following the NYSE's four-day shutdown in the wake of the attacks on the World Trade Center on Sept. 11.
Along with market makers, including ITG and Knight-Trading , LaBranche's fundamental earnings drivers blossom in an economic turnaround, giving more assurance than other financial services investments, like credit card companies where the outlook is unknown, says Charlotte Chamberlain, analyst at Jefferies & Co.
"With thrifts, market makers and traders, you've got some firm ground on which to base your investment decisions," says Chamberlain, who says they offer safety, along with a good level of risk, or beta, when the market picks up steam.
Chamberlain, who lowered her rating on the stock to "accumulate" from "buy" on Sept. 11, says that since the effects of the terrorist attacks aren't fully reflected in the economy, the market still faces further downside--which could jeopardize LaBranche's near-term prospects.
With the stock price off almost 54% from this year's high of $51.03, now's a good opportunity to buy the specialist firm that controls 26% of the NYSE trading volume.
Once better days are here again, it will be too late. |
