NEW YORK (TheStreet) -- Shares of FXCM (FXCM) are down 8.53% to $2.36 in early market trading Monday, after the company had its rating lowered to "underperform" from "market perform" this morning by analysts at Keefe Bruyette & Woods.
The firm said the company's closing price of $2.58 is in its "midpoint of valuation range."
Keefe Bruyette analysts noted that FXCM's fourth quarter earnings beat was due to lower expenses, mainly with lower referring broker fees.
The firm added that while its retail account balances were flat since January, its business with institutional customers was "down sharply in February."
Keefe Bruyette believes the list of non-core assets that FXCM's management plans to sell is "quite long." The firm expects sales to generate about $250 million in capital, compared to its debt of $300 million to Leucadia National (LUK) .
Analysts are concerned that Leucadia has the option to force FXCM into a sale over the next three years.
New York City-based FXCM is an online provider of foreign exchange trading and related services to approximately 183,679 active retail customers, offering access to over-the-counter foreign exchange markets through its technology platform and an agency model to execute their trades.
Separately, TheStreet Ratings team rates FXCM INC as a Sell with a ratings score of D+. TheStreet Ratings Team has this to say about their recommendation:
"We rate FXCM INC (FXCM) a SELL. This is driven by a number of negative factors, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its generally disappointing historical performance in the stock itself, poor profit margins and feeble growth in its earnings per share."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- FXCM's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 86.28%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last quarter. Although its share price is down sharply from a year ago, do not assume that it can now be tagged as cheap and attractive. The reality is that, based on its current price in relation to its earnings, FXCM is still more expensive than most of the other companies in its industry.
- The gross profit margin for FXCM INC is currently lower than what is desirable, coming in at 29.19%. Regardless of FXCM's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 12.32% trails the industry average.
- FXCM INC reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, FXCM INC reported lower earnings of $0.37 versus $0.48 in the prior year. For the next year, the market is expecting a contraction of 64.3% in earnings ($0.13 versus $0.37).
- The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. When compared to other companies in the Capital Markets industry and the overall market, FXCM INC's return on equity is below that of both the industry average and the S&P 500.
- You can view the full analysis from the report here: FXCM Ratings Report