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On Sep 27, 2013, we downgraded our recommendation on TD Ameritrade Holding Corporation (AMTD - Analyst Report) to Neutral from Outperform based on the current volatile trading volumes amid uncertain markets. Nevertheless, the company is focused on improving its trading and investing business through product innovation, new IDA agreements to mitigate the regulatory impact, advanced customer service as well as expense discipline.

Why Neutral?

Due to a sluggish macroeconomic environment, trading volumes at TD Ameritrade remained volatile in the recent period. Notably, in July, average client trades declined as compared to June, while it improved in August from the prior month.

Moreover, the company recorded higher average client trades per day for the 9 months ended Jun 30, 2013 compared to the prior-year period, owing to a modest improvement in equity markets. However, we believe trading will remain under pressure in the near term.

Since 2010, TD Ameritrade has countered several headwinds such as a low interest rate environment, which weighed on expansion and net interest income. Even though interest rates are rising, global macroeconomic uncertainty kept many retail investors away from the market and continued to exert pressure on the real estate sector.

However, TD Ameritrade remains a leading asset gatherer with four consecutive years of double-digit annualized growth since 2008 in net new client assets. An increase in funded accounts and expansion in the RIA servicing business were the primary factors that led to the growth in organic assets.  

Moreover, the company reported fiscal third-quarter 2013 (ended Jun 30, 2013) earnings of 33 cents per share, beating the Zacks Consensus Estimate by 2 cents. Better-than-expected results came on the back of higher revenues.

For TD Ameritrade, the Zacks Consensus Estimate for 2013 surged 7.1% to $1.20 per share, over the last 90 days. For 2014, the Zacks Consensus Estimate increased 7.3% to $1.32 per share, over the same time frame. TD Ameritrade currently carries a Zacks Rank #2 (Buy).

Other Stocks to Consider

Other financial stocks that are worth considering include GAIN Capital Holdings, Inc. (GCAP - Snapshot Report) with a Zacks Rank #1 (Strong Buy), while E*TRADE Financial Corp. (ETFC - Analyst Report) and The Charles Schwab Corp. (SCHW - Analyst Report) carry a Zacks Rank #2 (Buy).

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