Raymond James: Focus Financial 'A Unique Investment Opportunity'

Focus Financial Partners Inc FOCS, which recently offered 16.22 million shares in an IPO, has seen its shares trade at a premium to its offer price of $33 since it listed July 26.

The company is a wealth management firm operating in the registered investment advisor industry.

The Analyst

Raymond James analyst Patrick O'Shaughnessy initiated coverage of Focus Financial with an Outperform rating and $43 price target.

The Thesis

Focus Financial's leadership position among RIA consolidators means a superior cost of capital in financing acquisitions, as well as the scale and talent to execute on its strategy, O'Shaughnessy said in a Monday note. (See the analyst's track record here.) 

The analyst believes the company can generate double-digit revenue growth due to a large pipeline of potential acquisition candidates.

The company's focus primarily on fee-based revenues adds "stability to the business model and [avoids] potential conflicts of interest arising from commissions," O'Shaughnessy said. 

Market appreciation has been responsible for a substantial portion of Focus Financial's five-year organic CAGR of 19 percent, the analyst said — meaning any market downturn could pose a meaningful headwind.

Raymond James introduced a non-GAAP EPS estimate of $1.73 for 2018 and $2.30 for 2019.

"Although there are some areas of uncertainty facing investors, including the sustainability of organic growth and the outlook for acquisition multiples, Focus is a unique investment opportunity with a track record of double-digit revenue and earnings growth and we view the risk-reward as attractive." 

The Price Action

Since its listing, Focus Financial stock has gained about 2.5 percent.

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