In Case You Didn't Know, Oppenheimer Is Publicly-Traded (And Its Valuation Is Attractive)

• Oppenheimer Holdings Inc. (USA) OPY shares are down 24 percent year-to-date, even after hitting a high of $27.77 on June 17.
• Macquarie's Hugh Miller upgraded the rating on the company from Neutral to Outperform, while raising the price target from $25 to $27.
• The company’s increased asset sensitivity is expected to benefit earnings, Miller said.

Investor meetings with Oppenheimer Holdings revealed the company’s improved asset sensitivity to a rising rate environment. Analyst Hugh Miller mentioned that the company had earlier indicated that the recapturing of MM fee waivers would boost its pre-tax income by around $12-15 million from a 100bps increase in the Fed rate.

Due to a shift in Oppenheimer’s client cash balances to FDIC insured deposits from MM accounts, the company now expects an accretion of $40-55 million from a 100bps increase in rates.

Oppenheimer expects the Department of Labor’s proposed fiduciary Standard Rule to result in a reduction in investment product access and advice for smaller retail investors. Miller added that the new rule is expected to increase the documentation, training and legal costs.

Miller believes that Oppenheimer is at a disadvantage relative to its peers Raymond James Financial, Inc. RJF (Rated: Neutral, PT $62) and Stifel Financial Corp SF (Rated: Outperform, PT $65) regarding its ability to absorb the potential increase in the compliance and training costs.

The EPS estimates for 2016 and 2017 have been raised from $2.23 to $2.70 and from $2.65 to $3.65, respectively, to reflect the company’s improved asset sensitivity.