Tuesday, May 27, 2014

Investing in Stock Brokerage Earnings Growth

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Headquartered in New York, E-TRADE Financial Corporation provides online brokerage and related products and services individual investors and stock plan participants.

The Company provides these services to customers both online and through their network of customer service representatives and financial consultants. The company also operates a bank for deposits generated through its brokerage business.

ETFC was incorporated in 1982 and had its IPO in 1996.

Excellent First Quarter Earnings

On April 23, E*TRADE reported its Q1 results. Net income for the quarter was $97 million-- highest in about seven years, and up from $35 million in Q1 of 2013. At $0.33 per share, it was also substantially better than the Zacks Consensus Estimate of $0.23 per share. ETFC has beat/met Zacks estimates in all of last four quarters, with an average quarterly surprise of 52.5%.

According to the management, “overall positive investor sentiment elevated brokerage activity to its highest level in nearly five years, which aided our record net new brokerage assets and brokerage account retention”.

Daily average revenue trades (DARTs) for the quarter were 198,000—up 24% from the prior quarter and 33% from the prior-year quarter.

ETFC got 72,000 net new brokerage accounts during the quarter, taking the total to 3.1 million accounts. During the quarter, customers added a record $4.1 billion in net new brokerage assets--an annualized growth rate of 7.5%.

As of March 31, 2014, bank and consolidated Tier 1 leverage ratios were 9.7% and 7.0% respectively, up from 9.5% and 6.7% at the end of the previous quarter.

Positive Earnings Estimates Revisions

After excellent results, analysts have raised their estimates for the company. Zacks Consensus Estimates for the current and next year are now $1.06 and $1.23 per share up from $0.95 and $1.20 per share respectively, 30 days ago.

The following chart shows the positive earnings momentum for the stock:

Rising estimates sent ETFC back to Zacks Rank #1 (Strong Buy) after the results.

Solid Industry Rank

Zacks industry rank for “Investment Brokers” is currently 37 out of 265 (top 14%).

The Bottom Line

ETFC is a Zacks Rank#1 (Strong Buy) stock. Further top Zacks Industry Rank also indicates strong chances of outperformance in the short- to medium- term.

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