Analyst Highlights Virtu Financial As A Bargain: 15%-20% Less Costly Than Major Banks and Insurers With 18% Investment Return

BofA Securities analyst Craig Siegenthaler initiated coverage on Virtu Financial, Inc. VIRT with a Buy rating and a price objective of $20, which implies a potential total return of 18%. 

According to the analyst, the current entry point is attractive given the recent negative news, cyclical trough trading backdrop, lack of long-only ownership, and a depressed valuation at 5-6x 2025E EBITDA.

This is because the stock is available at 15% - 20% cheaper than other capital-intensive financials such as banks & insurers.

The analyst noted that VIRT is facing challenges from the SEC: an equity market structure reform package de facto banning payment for order flow (PFOF) and potentially impacting its business model. 

Then, in September, the Commission charged VIRT with failing to form information barriers between its market-making and agency businesses, Siegenthaler added.

Per the analyst, the prevailing market structure rules are likely to be more favorable than the initial SEC proposal, while VIRT could have small/manageable liability in the lawsuit.

VIRT’s profits already reached a floor in 2Q23, with market making & execution up 6/4% q/q in 3Q23. 

Future upside could come from higher retail volumes, lower interest rates, and the next bull market.

Intensifying competition in equities and strong rivals (including powerhouse Citadel Securities) and continued cyclical pressures from tight monetary conditions may weigh on the stock.

For FY23, the analyst expects the company to report EPS of $2.07, with dividend yield of 5.4%.

For FY24, Siegenthaler projects the company to report EPS of $2.28, with dividend yield of 5.4%.

Price Action: VIRT shares are trading higher by 0.37% to $17.83 on the last check Tuesday.