JPMorgan Downgrades ITG To Neutral, Sees Near-Term Activity Levels Weakening

Despite signs of slowing in Investment Technology Group ITG trading volume and commissions, the stock has significantly appreciated so far in 2016.

J.P. Morgan’s Kenneth B. Worthington downgraded the rating on the company from Overweight to Neutral, while lowering the price target from $24 to $23.

Near Term Concerns

While expressing optimism regarding longer-term investors and the new CEO, Frank Troise and his business growth framework, Worthington expressed concern regarding near term expectations and weaker industry volumes, especially equity commissions.

“We would use dips to again accumulate shares given our confidence in the longer-term growth story at ITG, but expect the stock could go lower before going higher,” Worthington mentioned.

Although trading activity began strongly in 2016, “activity levels, and in particular commission levels, appear to have slowed meaningfully in recent weeks,” the analyst said, with U.S. Listed trading volumes falling 22 percent over the last two weeks of March.

In addition, initial dilution due to the Ross Smith divestiture is also expected to impact near term earnings.

New CEO

Worthington believes that the client meetings held by Investment Technology Group’s new CEO have had a positive impact in terms of continued improvements in the company’s market share.

Although the overall market share is still below the normal 4.5 percent, market share for tier-1 stock has recovered to 2.5 percent, which the analyst pointed out was “the highest level since the SEC investigation last year.”