On March 18, 2014, we issued an updated research report on E*TRADE Financial Corporation (ETFC). This brokerage firm recently reported an upswing in the total daily average revenue trades (DARTs) for the first two months of the current quarter. DARTs jumped 26% and 3% in January and February, respectively and came in at 201,223 as of Feb 28, 2014.
Though volatility in equity markets has affected the level of DARTs over the past few years, the rebound in the equity markets has been favorable for the company. Moreover, the company’s aggressive focus on loss mitigation strategies such as short sales, loan modifications and transfers to better servicers are expected to enhance DARTs in the coming months.
In January, the company reported in-line fourth-quarter 2013 results as compared with the Zacks Consensus Estimate, but improved significantly from a net loss in the prior-year quarter. Quarterly results benefited from a rise in DARTs and reduced provisions. Moreover, a strong capital position was exhibited in the quarter. However, mounting operating expenses reflected undisciplined expense management.
The company exhibited a decent performance in 2013 as evident from its earnings history. In 2013, the company posted in-line earnings in 3 quarters and 1 positive earnings surprise in the second quarter.
E*TRADE continues to streamline its balance sheet risk by reducing credit risk in its loan portfolios. Notably, the loan portfolio declined 19% in 2013. Over the next one or two quarters, the quarterly run-off of the portfolio is expected to be $500 million and decline to $350 million per quarter by the end of 2014.
E*TRADE’s initiatives to reduce balance sheet risk look promising though it might exert near-term pressure on the margins. Moreover, the company’s decision to focus on core operations and exit the market making business is expected to improve profitability further in the near term.
Further, the Zacks Consensus Estimate over the past 30 days improved 1.1% to 92 cents per share for 2014. Also, for 2015 it increased 1.7% to $1.17 per share over the same time frame. E*TRADE currently carries a Zacks Rank #1 (Strong Buy).
Key Picks from the Sector
Other investment brokers worth considering include TD Ameritrade Holding Corporation (AMTD), GAIN Capital Holdings, Inc. (GCAP) and Piper Jaffray Companies (PJC). All these 3 carry a Zacks Rank #1.
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