On Jan 7, 2015, we issued an updated research report on E*TRADE Financial Corporation (ETFC). Shares of this New York-based investment brokerage firm have gained over 15% in a year’s time. We believe the rise in the stock price has been driven by a number of factors including the company’s continuous efforts in strengthening its balance sheet – the latest move being its plans to reduce debt, apart from the ongoing strategy of lowering the size of its legacy loan portfolio.
In Nov 2014, E*TRADE announced plans of reducing its outstanding corporate debt by $400 million as well as refinancing its existing debt to extend the maturity date. Additionally, the company has set up a $200 million revolving credit facility, which is likely to boost its liquidity position. We believe this debt restructuring is set to strengthen the company’s financials in the near term.
With respect to streamlining of its balance sheet risk, E*TRADE continues reducing its legacy loan portfolios. As of Sep 2014, the loan portfolio stood at $6.7 billion, down $350 million from the prior quarter. Notably, the company’s loan portfolio declined 19% in 2013, following the decrease of 19.5% in 2012, 18.5% in 2011 and 20.6% in 2010. Moreover, for the upcoming quarters, the quarterly run-off of the portfolio is expected to be in the range of 4%–5%.
Nevertheless, the persistent low interest rate environment, volatility in equity markets and the prevailing stringent regulatory landscape remain concerns in our view.
Further, over the past 60 days, the Zacks Consensus Estimate declined 1.8% to $1.08 per share for 2014, while it remained stable at $1.11 per share for 2015.
E*TRADE currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in this space include The Charles Schwab Corporation (SCHW), Interactive Brokers Group, Inc. (IBKR) and GAIN Capital Holdings, Inc. (GCAP). All these stocks sport a Zacks Rank #1 (Strong Buy).
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