GFI Group Bathing in Uncertainty

Investors have been showing a lot of love to derivatives broker GFI Group (GFIG) lately, as higher volatility levels in the market could have analysts quickly tossing previous earnings estimates out the window.

Current estimates call for the company to earn $.74/share in the first quarter on a 26% rise in revenue.  But none of the 7 analysts covering the stock have changed estimates in the past three months.  They may have been waiting to see if higher volatility was going to be isolated event – something only seen for a few trading sessions – but we’re certainly into “meaningful trend” territory at this point. 

Of particular interest is GFI Group’s booming credit-default swaps business, which has seen spreads widen greatly from what we saw throughout most of 2006.  Uncertainty is running high these days, which could lead to strong revenue and margin gains for GFI, which acts as an “inter-dealer” on many traditional and exotic risk-mitigation products. 

The stock was trading at just above $56 when we highlighted the company back on March 6^th.  Currently the stock is trading at an all-time high of $67 and change, but the PEG is still a very modest 1.18 – and those growth estimates may have been best written in pencil, not pen. 

Ryan Barnes

March 28, 2007