On Apr 2, 2013, we reiterated our long-term recommendation on E*TRADE Financial Corporation (ETFC) at Neutral. Our decision primarily rests on lower operating expenses. Yet, a decline in the top line along with reduced new brokerage accounts acted as the headwinds.
Why Neutral?
In fourth quarter 2012, E*TRADE reported a net loss of 65 cents per share, which exceeded the Zacks Consensus Estimate of a loss of 54 cents. Earnings were adversely affected by a decline in top line and a fall in total daily average revenue trades (DARTs).
Following its fourth-quarter results, the Zacks Consensus Estimate for 2013 went up by 1.8% to 57 cents per share over the last 60 days. The Zacks Consensus Estimate for 2014 also inched up 1.4% to 70 cents per share over the same time frame. Hence, E*TRADE currently holds a Zacks Rank #2 (Buy).
In spite of the volatile equity markets, E*TRADE’s focus on loss mitigation strategies and its continuous efforts on increasing accounts and assets is expected to enhance DARTs in the near future. Also, cost reduction initiatives taken by E*TRADE is expected to prove beneficial for the company going forward. Moreover, E*TRADE continues to streamline its balance sheet by lowering credit risks in its loan portfolios.
On the other hand, though E*TRADE is taking initiatives to strengthen its client-advisor relationship, it could experience a pressure on DARTs as a result of the disengagement of retail traders. Moreover, a sluggish economic recovery, strict regulatory environment coupled with investors’ cautious attitude towards equity market investments can pressurize the DARTs further.
Other Brokerage Firms to Consider
Besides E*TRADE, other major brokerage firms that are performing well and can be considered for investment include Knight Capital Group, Inc. (KCG), TD Ameritrade Holding Corporation (AMTD) and Stifel Financial Corp. (SF). All these carry a Zacks Rank #2.
TD AMERITRADE (AMTD): Free Stock Analysis Report
E TRADE FINL CP (ETFC): Free Stock Analysis Report
KNIGHT CAP GP (KCG): Free Stock Analysis Report
STIFEL FINL (SF): Free Stock Analysis Report
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