InteractiveBrokers and OptionsXpress: Benefiting from a Market Rebound

Both IBKR and OXPS are major players in the once-again booming options markets, as well as in equities, futures and FOREX. As risk aversion declines their businesses are expected to see gains in both absolute account numbers and trading volumes.

Both companies sport clean balance sheets and solid profitability with substantially better results expected for 2010. Each stock is down dramatically from their bull market valuations and now trades at nice discounts to the better-known industry competitors Charles Schwab (SCHW) and TD Ameritrade (AMTD) based on P/E and P/BV.

I believe this translates to a great opportunity for investors seeking good-quality shares that have yet to reflect the improving market conditions. Compare the values available for IBKR and OXPS versus AMTD and SCHW based on current prices.

Company	11/9/09 Close	2009 Est.	2010 Est.	2009 P/E	2010 P/E	Price B/V
IBKR	$17.14	1.10	1.47	15.6x	11.7x	1.2x
OXPS	$15.85	1.06	1.29	15.0x	12.3x	2.9x
AMTD*	$20.38	1.05	1.25	19.4x	16.3x	3.5x
SCHW	$17.83	0.72	0.89	24.8x	20.0x	4.5x
*AMTD reflect FYs ending Sep. 30

Using a very conservative assumption of just 16 times next year’s projections, leads me to the following target prices for these four stocks.

Company	2007-2008 Peak Price	2008-2009 Trough Price	% Drop from Peak - Trough	Est. Gains @16x 2010 EPS
IBKR	$35.93	$12.68	(64.7%)	37.2%
OXPS	$34.95	$8.38	(76.0%)	30.2%
AMTD*	$23.50	$9.30	(60.4%)	(1.9%)
SCHW	$28.80	$11.00	(61.8%)	(20.1%)

Here are the average multiples over the past few years for each of these companies since 2005. Based on today’s prices and next year’s projections IBKR and OXPS seem to offer much better upside and less risk than Schwab and Ameritrade.

Company	Average P/E	Est. 2010 P/E	Discount to Avg.
IBKR*	16.8x	11.7x	30.4%
OXPS	18.1x	12.3x	32.0%
AMTD	17.1x	16.3x	4.7%
SCHW	21.7x	20.0x	7.8%

* IBKR's average since its 2007 IPO

Outright purchase of both IBKR and OXPS offers better than 30% upside over the next 12 months based simply on a regression to more normalized valuation metrics and a somewhat improving overall market.

INTERACTIVE BROKERS GROUP REPORTS BROKERAGE METRICS FOR OCTOBER 2009 AND ANNOUNCES UPCOMING PRESENTATION

Interactive Brokers Group, Inc. an automated global electronic market maker and broker, today reported its Electronic Brokerage monthly performance metrics for October and announced that Chairman and Chief Executive Officer Thomas Peterffy will present at the Keefe, Bruyette & Woods 2009 Securities Brokerage and Market Structure Conference on Thursday, November 5, 2009 at 11:15 a.m. EST.

Highlights for the month included:

• Ending customer equity of $14.1 billion, 58% higher than October 2008 and 5% higher than prior month.
• Ending customer credit balances of $10.1 billion and customer margin loan balances of $3.0 billion.
• 330 thousand Daily Average Revenue Trades (DARTs) in October 2009, up 2% from prior month.
• 645 annualized average cleared DARTs per customer account.
• 129.8 thousand customer accounts, 19% higher than October 2008 and 2% higher than prior month.

Disclosure: Author is long IBKR and OXPS shares and short IBKR and OXPS options.