E*TRADE Financial Corporation ETFC is scheduled to report third-quarter results after the market closes on Oct 22.
This investment broker delivered a negative earnings surprise of 7.4% in the previous quarter, primarily due to lower trading activity. However, the company has a history of beating earnings expectations as evident from its average positive beat of 18.89% for the trailing four quarters.
Will E*TRADE be able to regain its earnings momentum in the third quarter? Let’s see how things have shaped up for this announcement.
What to Expect in Q3?
In Sep 2015, E*TRADE announced a major restructuring, aimed at eliminating approximately $4.4 billion in high-cost wholesale debt from the company’s balance sheet by end of the third quarter. This will enable the company to take up low-cost deposit funding in the upcoming quarters.
However, as a result of such restructuring, E*TRADE expects to record a pre-tax charge of $410 million in the third quarter. Nonetheless, the company intends to offset the impact of this charge by decreasing its balance sheet size in line with reduction in liabilities, utilizing excess bank capital and contributing $110 million of parent capital to the bank.
E*TRADE expects to report net loss in its upcoming release. But considering the charge as a non-recurring item, the company is likely to report earnings in the third quarter.
Separately, the prevailing low interest environment is anticipated to continue weighing on the company’s net interest income, which constitutes nearly 60% of its net revenue. Notably, management projects net interest spread to decline 240 basis points in the third quarter.
However, based on the monthly activity reports for July and August, we expect the company to report a notable rise in trading income for the third quarter. The daily average revenue per trade (“DARTS”) shot up 7% month over month in July, and jumped 21% month over month and 23% year over year in August. In fact, the company witnessed record trading on Aug 24.
Additionally, per the company, the quarter is likely to witness provisions in the range of $0–$20 million; while net gains on loans and securities are projected to scale the upper end of the expected range of $5–$10 million.
E*TRADE’s activities during the quarter were inadequate to win analysts’ confidence. As a result, the Zacks Consensus Estimate for the quarter remained unchanged at 29 cents per share over the last 7 days.
Earnings Whispers
Our proven model does not conclusively show that E*TRADE is likely to beat the Zacks Consensus Estimate in the third quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy) or at least 2 (Buy) or 3 (Hold) for this to happen. Unfortunately, this is not the case here as elaborated below.
Zacks ESP: The Earnings ESP for E*TRADE is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at 29 cents.
Zacks Rank: E*TRADE’s Zacks Rank #3 increases the predictive power of ESP. However, we need to have a positive Earnings ESP as well to be sure of an earnings beat.
Stocks That Warrant a Look
Here are some stocks you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:
The Earnings ESP for Capital One Financial Corporation COF is +2.08% and it carries a Zacks Rank #3. The company is scheduled to release third-quarter results on Oct 22.
Ally Financial Inc. ALLY has an Earnings ESP of +1.92% and carries a Zacks Rank #2. It is expected to report third-quarter results on Oct 29.
The Earnings ESP for Banner Corporation BANR is +10.15% and it carries a Zacks Rank #1. The company is expected to release third-quarter results on Oct 21.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Be the first to comment