Hunters Spot Undervalued Prey: Virtu Financial Inc. A Steal at 15%-20% Discount to Big Financial Institutions While Offering a Whopping 18% Investment Reward
The investment sharks at BofA Securities have their sights set on Virtu Financial, Inc. VIRT and are calling it a Buy, with a price target of $20, forecasting a monster total return of 18%.
According to the sharp-eyed analyst, the current price is a steal given recent negative headlines, cyclical trading challenges, absence of big investor interest, and a rock-bottom valuation at 5-6x 2025E EBITDA.
The financial opportunity arises from the stock being on sale at a whopping 15% – 20% discount compared to heavyweight financial institutions like banks and insurers.
The analyst acknowledged that VIRT is facing some regulatory hurdles, such as a proposed market structure reform that could impact its business model, as well as a lawsuit from the SEC for failure to implement information barriers between its market-making and agency businesses.
However, the savvy analyst believes that the current market rules will end up being more favorable than initially proposed, with VIRT having manageable liability in the lawsuit.
VIRT’s earnings hit a low point in 2Q23, but have since made a strong recovery, with market making & execution up 6/4% q/q in 3Q23.
Potential for further gains could emerge from increased retail trading volumes, lower interest rates, and the arrival of the next bull market.
However, the financial predator warns of fierce competition in equities and the looming threat from powerful rivals like Citadel Securities, along with ongoing cyclical pressures from tight monetary conditions that may bear down on the stock.
The analyst forecasts the company to post an EPS of $2.07 in FY23, with a dividend yield of 5.4%, and an even stronger showing in FY24 with an EPS projection of $2.28 and the same dividend yield of 5.4%.
Price Action: VIRT shares are currently trading higher by 0.37% at $17.83.