FXCM Inc. (FXCM) Downgraded after Reporting Better Than Expected Earnings on Friday

Shares of FXCM Inc. (FXCM) were trading down ??0.17 or -6.59 percent to $2.41 per share in this morning's premarket. The company's stock was downgraded to "Underperform" this morning by KBW, while Credit Suisse reiterated its underperform rating and lowered its price target for the stock to $2.60. FXCM stock closed at $2.58 on Friday, up +0.43 or +20 percent after reporting better than expected fourth quarter earnings late Thursday.

New York City, New York based FXCM Inc. was founded in 1999 and is the largest online foreign exchange broker in the United States.
The company has been through difficulties in the past, which began when it partnered with the now defunct Refco group in 2003. Refco bought a 35 percent stake in FXCM. After Refco collapsed in 2005, FXCM was in litigation for years.

FXCM allows customers to operate in the forex market with leverage and "direct market access", meaning that FXCM takes a number of markets from different dealers and lets the client have the best price on any given trade. The company had it initial public offering in 2010 at $14 per share and has offices in major cities around the world. FXCM stock lost over 90 percent of its value last month after the "Swiss Shock" on January 15th, when the central bank removed its 3 and a half year floor on the Euro. The drastic move in the Swiss Franc caused the company to fail to meet capital requirements, sending the stock crashing.

This morning, Keefe, Bruyette & Woods downgraded FXCM stock after noting that the closing price of $2.58 for the stock on Friday was the "midpoint of valuation range", and therefore giving the company an "underperform" rating. Also, Credit Suisse reiterated its underperform rating, cutting its price target on the stock to $2.60.

On Thursday afternoon, the company reported U.S. GAAP net income of $15.8 million or $0.35 per fully diluted share compared to $0.08 per diluted share in the same period one year ago and $0.05 for the previous quarter. Adjusted net income came to $16.1 million or $0.20 per fully diluted share compared to $8.4 million or $0.11 per diluted share in the third quarter of 2014. Analysts expected the company to report earnings of $0.17 per share.

After the January 15th move in the Swiss Franc, the company was left with a negative equity balance of $276 million. The next day, on January 16th, FXCM entered into a $300 million financing arrangement with Leucadia National Corporation and has since paid back $12 million.

FXCM management is still on track to sell more of FXCM's non-core assets; KBW expects the sales to generate as much as $250 million. KBW expressed concern that Leucadia has the option to force FXCM into a sale over the next three years, the sale would leave stockholders with anywhere from $0.42 to $2.79 per share.

Investors are selling the stock in this morning's premarket after both KBW and Credit Suisse cited higher institutional volume and lower pricing and expenses for the better than expected earnings. FXCM will have to repay $60 million of its loan by April of next year or incur an additional charge of $30 million.

Other News About FXCM

FXCM Aims for FastMatch, Lucid Stake Sale to Repay Loan

Company has already started liquidating its positions.

Citi Thinks FXCM Is Still Worth $0.75

Despite better than expected earnings, Citi says the company's equity value is "effectively zero".

Other Stocks in the News

Valeant raises offer to $173/share in new deal for Salix

Valeant raises its bid from $158 after Endo's cash and stock offer for the company.

Big problem for fund managers: liking Apple too much

174 fund managers hold large positions in the stock.

Published on Mar 16, 2015
By Jay Hawk
Jay Hawk
Jay Hawk enjoyed a 12-year professional financial markets career incorporating extensive first hand futures and options experience obtained by trading in the stock, commodity and forex markets on U.S. exchanges. Since retiring as a full-time financial market professional, he has been actively trading stock, commodities, forex and options for his own account and managing funds for others, as well as writing financial market commentary and educational articles.

Copyrighted 2020. Content published with author's permission.

Posted in ...