TD Ameritrade Holding Corporation (AMTD) is scheduled to report its fiscal fourth-quarter 2014 results on Oct 28, before the opening bell.
Fiscal third-quarter 2014 (ended Jun 30) earnings of 34 cents per share per came in line with the Zacks Consensus Estimate. Alongside, revenues exhibited an increase. Further, the quarter continued to witness a rise in both total client assets and daily average client trades. However, higher expenses were on the downside.
Will TD Ameritrade disappoint this earnings season? Let’s see how things have shaped up.
Factors to Influence Fiscal Q4 Results
In fiscal third-quarter 2014, TD Ameritrade’s net new client assets grew 24.1% year over year to $13.4 billion. Management in its fiscal third-quarter 2014 Earnings Conference Call noted that if the company can sustain the growth trend in the fourth quarter, fiscal 2014 will mark the sixth consecutive year of double-digit asset growth.
Further, investors’ re-engagement and bullish stance on equity markets have helped Ameritrade’s average client trades per day to witness a steady rise since the first quarter of fiscal 2013. Given a favorable equity and asset market backdrop, and the company’s innovative trading platform, we expect growth in trading volumes to drive revenue expansion in this quarter as well.
On the expense front, management expects operating expenses (excluding advertising expenses) to remain in the range of $390–400 million. Management’s guidance considered its planned investments on the technology platform along with higher clearing costs pertaining to derivatives business. Notably, excluding advertising expenses, operating expenses stood at $ 399 million in fiscal third-quarter 2014.
However, a persistent low interest rate environment has been weighing on TD Ameritrade’s net interest margin (‘NIM’). We observed that though spread based revenue increased in the recent quarters, TD Ameritrade has not been able to maintain steady growth in net interest margin. With the absence of any significant development in the fourth quarter, NIM is expected to remain under pressure.
Activities of TD Ameritrade during the quarter were inadequate to win analysts’ confidence. As a result, the Zacks Consensus Estimate for the quarter remained stable at 36 cents per share over the last 7 days.
Earnings Whispers
Our proven model does not conclusively show that TD Ameritrade is likely to beat the Zacks Consensus Estimate in fiscal fourth 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 TD Ameritrade is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at 36 cents per share.
Zacks Rank: TD Ameritrade’s Zacks Rank #3 (Hold) increases the predictive power of ESP. However, we also need to have a positive ESP to be confident of an earnings surprise call.
Stocks That Warrant a Look
Here are some other stocks in the finance sector you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:
CIT Group Inc. (CIT) has an earnings ESP of +11.36% and a Zacks Rank #3. It is slated to report results on Oct 28.
Cincinnati Financial Corp. (CINF) has an earnings ESP of +23.33% and carries a Zacks Rank #3. It is expected to report its results on Oct 28.
CNO Financial Group, Inc. (CNO) has an earnings ESP of +3.13% and carries a Zacks Rank #3. It is scheduled to report results on Oct 28.
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