Top 2 Financials Stocks That May Fall Off A Cliff This Quarter

Virtu Financial, Inc. VIRT, a leading financial services company, is well poised to grow on the back of its diversified business and efficiency-improving efforts. Headquartered in New York, Virtu Financial has a market cap of $5.56 billion.

Its shares have returned 77.4% in the year-to-date period, outperforming both the industry and the S&P 500 Index. Over this timeframe, the industry and the S&P 500 Index have gained 15.8% and 23.9%, respectively.

VIRT YTD Price Performance

Before buying the stock, here are four things that investors should know.

Undervalued: Despite recent price appreciation, the stock is currently trading at a discount. Its forward 12-month price-to-earnings ratio of 11.75X is below the industry average of 16.09X. The company's underlying fundamentals are comparatively strong, as evidenced by a Value Score of B. These positive factors are likely to help the company maintain its share growth trajectory and continue outperforming the industry, making it an excellent choice for your portfolio.

Financial Strength: It exited the third quarter with cash and cash equivalents of $701.4 million, much higher than its short-term borrowings of $128.8 million. Its operating cash flow increased 13% in the trailing 12-month period to $556 million. Its financial flexibility enables it to take shareholder-friendly moves. In 2023, Virtu Financial bought back shares worth around $210 million. In the third quarter of 2024, it returned $48 million through buybacks. It had around $479.3 million remaining under its share buyback authorization at the third-quarter end. Its dividend yield of 2.7% is higher than the industry average of 1.7%.

Strong Execution Services Unit: Virtu’s Execution Services segment has benefited significantly from the ITG acquisition, which diversified its revenue streams and strengthened its core technology offerings. Key products like POSIT Alert, Triton Valor EMS, and trading analytics have driven performance, with global equity execution for a top Asian asset manager highlighting its capabilities. In the first nine months of the year, the segment achieved over 9% revenue growth, reversing a three-year decline. Continued growth in average adjusted net trading income per day is expected to further enhance Virtu’s overall financial results.

Encouraging Estimates: Reflecting the positive sentiment around Virtu, the Zacks Consensus Estimate for earnings per share has seen upward revisions. The consensus estimate for 2024 adjusted earnings for VIRT is currently pegged at $3.15 per share, indicating a 71.2% year-over-year surge. It beat earnings estimates in three of the past four quarters and missed once, with an average surprise of 8%. The consensus estimate for 2024 revenues suggests 24.5% year-over-year growth.

Virtu Financial, Inc. Price and EPS Surprise

Virtu Financial, Inc. price-eps-surprise | Virtu Financial, Inc. Quote

Key Risk

However, there is one factor that investors should keep an eye on.

With the market stabilizing fast, Virtu Financial’s performance might suffer as it gains traction from market volatility. As such, it will have to depend further on its diversification efforts.

Nevertheless, we believe that a systematic and strategic plan of action will drive this Zacks Rank #1 (Strong Buy) company’s growth in the long term. You can see the complete list of today’s Zacks #1 Rank stocks here.

Other Top-Ranked Players

Investors interested in the broader Finance space may look at some other top-ranked players like Jackson Financial Inc. JXN, WisdomTree, Inc. WT and Houlihan Lokey, Inc. HLI. While Jackson Financial currently sports a Zacks Rank #1, WisdomTree and Houlihan Lokey carry a Zacks Rank #2 (Buy) each.

The Zacks Consensus Estimate for Jackson Financial’s current-year earnings is pegged at $18.80 per share, which indicates 46.4% year-over-year growth. It witnessed two upward estimate revisions in the past 60 days against no downward movement. The consensus mark for JXN’s current year revenues suggests a 119.7% surge from a year ago.

The Zacks Consensus Estimate for WisdomTree’s 2024 earnings indicates 75.7% year-over-year growth. During the past month, WT has witnessed three upward estimate revisions against none in the opposite direction. It beat earnings estimates thrice in the past four quarters and met once, with an average surprise of 7.3%.

The Zacks Consensus Estimate for Houlihan Lokey’s current-year earnings suggests a 29% year-over-year increase. During the past month, HLI has witnessed two upward estimate revisions against none in the opposite direction. The consensus mark for current-year revenues is pegged at $2.3 million, indicating a 19.6% increase from a year ago.

Zacks Investment Research

Discover Financial Services DFS recently announced a strategic alliance with Telered, transforming the payment experience and increasing acceptance for cardholders. This partnership aims to enhance payment systems and create opportunities for individuals, businesses, and financial institutions.

This move bodes well for DFS, as it will benefit from the Panamanian merchant network's acceptance of its cards, enhancing convenience for tourists and global business travelers. Higher domestic and cross-border transactions will aid DFS’s discount/interchange revenues in the future. The metric declined 4% year over year in the third quarter of 2024.

This partnership will also enable Sistema Clave users to access over 70 million global merchants and 1.8 million ATMs, allowing seamless international transactions. Local users will continue benefiting from pin security and the low cost of the Sistema Clave Card while also being introduced to contactless technology for payments and integration into digital wallets.

The agreement also benefits local merchants by expanding their reach to more than 345 million cardholders, including Discover, Diners Club, and PULSE networks. This expansion effectively increases revenue opportunities for Panamanian businesses, fostering economic growth and global integration.

Project Clave 2.0 will be completed in three stages over a year. The first stage involves changes to Telered’s infrastructure and interconnection with Discover Global Network. The second and third stages include issuing the new Clave Global card, transitioning users to the updated system and enabling acceptance at merchant locations and ATMs.

DFS’ Price Performance

Discover Financial’s shares have gained 41.3% in the past six months compared with 25.4% growth of the industry.

DFS Zacks Rank & Key Picks

Discover Financial currently has a Zacks Rank #3 (Hold).

Investors interested in the broader Finance space may look at some better-ranked players like Jackson Financial Inc. JXN, ProAssurance Corporation PRA and WisdomTree, Inc. WT. Jackson Financial and ProAssurance sport a Zacks Rank #1 (Strong Buy), while WisdomeTree carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Jackson Financial’s current-year earnings is pegged at $18.80 per share, which indicates 46.4% year-over-year growth. It witnessed two upward estimate revisions in the past 60 days against no downward movement. The consensus mark for JXN’s current-year revenues suggests a 119.7% surge from a year ago.

The Zacks Consensus Estimate for WisdomTree’s 2024 earnings indicates 75.7% year-over-year growth. During the past two months, WT has witnessed three upward estimate revisions against none in the opposite direction. It beat earnings estimates thrice in the past four quarters and met on the other occasion, with an average surprise of 7.3%.

The Zacks Consensus Estimate for ProAssurance’s current-year earnings suggests a 571.4% year-over-year improvement. During the past two months, PRA has witnessed two upward estimate revisions against none in the opposite direction. The consensus mark for current-year revenues is pegged at $1.1 billion. It beat earnings estimates thrice in the past four quarters and missed once, with an average surprise of 61.5%.

Zacks Investment Research