This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Schwab's OptionsXpress Buy Could Be the First of Many: Analysts

NEW YORK ( TheStreet) -- Charles Schwab (SCHW - Get Report)'s acquisition of OptionsXpress (OXPS) for $1 billion in stock could spur more consolidation in the options sector, according to analysts.

"There are many smaller options players that are privately held and then there are firms like TradeStation (TRAD) and FXCM (FXCM - Get Report) or GAIN Capital Holdings (GCAP - Get Report) that have received a pop in share price on the assumption that they could also be takeout targets," said Morningstar analyst Michael Wong.

On Monday GAIN Capital closed up eight percent, TradeStation was up four percent and FXCM was up almost two percent.

Wong said that retail investors have become more sophisticated and are now frequently using options and the acquisition of OptionsXpress is logical because it fills in that gap for Schwab. He added that any of the smaller companies in the options sector may be targets of TD Ameritrade (AMTD - Get Report), but would not likely fit in with the larger brokerages.

Other analysts such as Sandler O'Neill'sRichard Repetto countered that an acquisition of these smaller companies is unlikely.

"This is a onetime deal, and Schwab bought a company with a specific capability. It is something those other firms don't have," Repetto said.

Under the terms of the agreement, OptionsXpress stockholders will receive 1.02 shares of Schwab stock for each share of OptionsXpress stock. Based on Schwab's closing stock price as of March 18, 2011, the transaction values each OptionsXpress share at $17.91. This means, Schwab is paying 10 times EBITDA and eight times 2012 revenue.

" The deal price the acquisition price was pretty reasonable and Schwab's stock was undervalued. Perhaps if they had paid more in cash it may have been better for Schwab shareholders," said Wong.

Doug Sipkin of Ticonderoga Securities said in a note that excluding the $55 million in restructuring the deal could be modestly accretive, brining in $80 million pre-tax or about four cents Schwab estimates that annually the combined organizations would have generated net revenues of $4.479 billion in 2010.
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
AMTD $36.79 -1.30%
GCAP $9.56 -0.42%
FXCM $1.44 -0.69%
SCHW $32.49 -1.10%
AAPL $125.73 -0.56%

Markets

DOW 17,669.88 -60.23 -0.34%
S&P 500 2,066.91 -9.87 -0.48%
NASDAQ 4,990.2650 -18.9490 -0.38%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs