On Monday, UBS updated its assessment of Virtu Financial (NASDAQ:VIRT), raising the price target from $18.00 to $24.00 while keeping a Neutral stance on the stock. The adjustment follows UBS's increased earnings per share (EPS) estimate for the second quarter of 2024 due to what it perceives as a generally favorable trading environment that could continue.
The firm now expects a 15% sequential decrease in daily Market Making revenues for the second quarter, which still marks a 22% year-over-year increase. Execution Services are anticipated to see a 5% quarter-over-quarter decline, equating to a 5% year-over-year rise.
UBS noted that despite a likely uptick in retail engagement, the activity might be skewed towards a limited number of stocks, notably those dubbed as "Meme stocks."
Moreover, while equity volumes have been strong, there has been significant activity in stocks priced below $1, which could impact overall performance. The crypto market making segment, which saw a robust first quarter, appears to have decelerated. UBS expressed concerns that Virtu Financial's stock performance might be overestimating the strength of the trading environment.
Despite these concerns, UBS suggested that Virtu Financial could present an opportunity if market volatility increases in the second half of the year, spurred by ongoing geopolitical uncertainty.
The new price target is based on a 9x multiple applied to the firm's revised FY25 EPS estimate of $2.65, a decrease from the previous 11x multiple on an estimated $1.66 EPS. UBS has adjusted the target multiple in light of reservations that the current market outlook may not meet more optimistic expectations.
In other recent news, Virtu Financial Inc . has been exploring the possibility of refinancing a portion of its debt through a potential offering of senior secured first lien notes. The proceeds from this potential offering are intended to pay down a portion of Virtu's senior secured first lien term loan facility, due in 2029.
The company stressed that this move would not significantly alter its long-term debt profile. However, it is not yet certain whether Virtu Financial will proceed with this offering or what the terms would be.
On the earnings front, Virtu Financial posted strong first-quarter results, with adjusted earnings per share (EPS) of $0.76 and adjusted net trading income averaging $6 million per day. The company reported a 55% EBITDA margin, translating to $203 million in adjusted EBITDA. Notably, the company saw standout performance in its cryptocurrency and ETF block market making operations.
In terms of executive changes, Cindy Lee is set to become the new Chief Financial Officer. In addition, the Board of Directors authorized an additional $500 million for share repurchases, indicating confidence in the firm's financial health. These are some of the recent developments shaping Virtu Financial's trajectory.
InvestingPro Insights
Following UBS's recent appraisal of Virtu Financial (NASDAQ:VIRT), an examination of real-time data from InvestingPro offers additional dimensions to the company's financial landscape. With a market capitalization of approximately $1.99 billion and a forward-looking P/E ratio of 14.81, the company presents a valuation that may attract investors seeking reasonable earnings multiples.
Notably, Virtu Financial's commitment to shareholder returns is evident through its consistent dividend payments over the past decade, now yielding 4.28%, a compelling figure for income-focused portfolios.
InvestingPro Tips suggest that management's proactive share buybacks and the anticipation of net income growth this year could signal confidence in the company's strategic direction. Furthermore, with six analysts revising earnings upwards for the upcoming period, there is optimism surrounding Virtu Financial's performance.
Although analysts expect a sales decline in the current year, the potential for profitability remains, as underscored by the company's positive track record over the last twelve months. For readers interested in a deeper analysis, there are additional InvestingPro Tips available for Virtu Financial, which can be accessed with the use of the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription.
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