Market Overview

A Deep Dive Into Interactive Brokers Decision To Cease Market Making Operations

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Wells Fargo maintained its Market Perform rating on Interactive Brokers Group, Inc. (NASDAQ: IBKR), which announced its decision to close its market making operations and solely focus on e-brokerage business.

Analyst Christopher Harris says the move isn't a complete surprise as Interactive Brokers has been reviewing this business for a long time and the pre-tax profit of the unit also fell significantly from $720 million in 2007 to $44 million in 2016.

Harris, who has a valuation range of $35 to $39 on the shares, expects the move to be dilutive to EPS and he models a 5 percent impact.

Though the investors may now ascribe higher value to e-brokerage business, the analyst said the current price cutting environment across the industry is “somewhat uncertain” for the commission-heavy e-brokerage business models.

“IBKR possess industry leading growth supported by cost and technological advantages relative to peers. However, due to near-term cyclical pressures in Brokerage and secular declines in Market Making, we view the shares as fairly valued,” Harris wrote in a note.

At last check, shares of Interactive Brokers fell 1.36 percent to $36.98.

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Latest Ratings for IBKR

DateFirmActionFromTo
Oct 2020Credit SuisseMaintainsOutperform
Jul 2020Compass PointDowngradesBuyNeutral
Jul 2020Wells FargoMaintainsUnderweight

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