On Apr 8, 2015, we issued an updated research report on E*TRADE Financial Corporation ETFC. Shares of this New York-based investment brokerage firm have gained nearly 39% 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 continued efforts in lowering the debt burden and reducing the size of its legacy loan portfolio, apart from revamping its brand and launching new products and services.
The company’s major priority now is to lower the debt to $1 billion. As of Dec 31, 2014, corporate debt declined 23% year over year to $1.37 billion. The company intends to reduce its debt by another $340 million to move closer to its target. We believe the gradual reduction in debt will strengthen its overall financial position in the quarters ahead.
With respect to streamlining of its balance sheet risk, E*TRADE continues to reduce its legacy loan portfolios. Notably, the company’s loan portfolio recorded a negative Compound Annual Growth rate (CAGR) of 22% over the last three years (2012-2014).
With online innovations and introduction of new products and services, E*TRADE is likely to expand its client base. Last year, the company revamped the E*TRADE brand and remains focused on improving its technology space to offer better digital experience to customers.
Nevertheless, the company will likely continue to face margin compression and lower trading volumes in the near term, given the persistent low rate environment and macro headwinds across the global market. The acute drop in oil prices in recent times continues to impact the company’s marginal rates of reinvestment. Also, the stringent regulatory landscape poses an added concern.
Over the past 60 days, the Zacks Consensus Estimate advanced 1.8% to $1.11 per share for 2015. Also it moved north 2.1% to $1.44 per share for 2016.
E*TRADE currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the finance space include Cowen Group, Inc. COWN, Simmons First National Corporation SFNC and Silvercrest Asset Management Group Inc. SAMG. All these stocks sport a Zacks Rank #1 (Strong Buy).
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