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Will Higher Costs Drag TD Ameritrade (AMTD) Q3 Earnings?
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TD Ameritrade Holding Corporation (AMTD - Free Report) is scheduled to report its fiscal third-quarter 2016 results on Tuesday, Jul 19, before the opening bell.
Though the Omaha-based investment broker’s fiscal second-quarter 2016 (ending March) earnings came in line with the Zacks Consensus Estimate, it improved 8.6% year over year. Results were aided by top-line growth and reduced expenses. Further, the company experienced strong trading activity that was driven by the heightened volatility in the quarter.
Notably, our quantitative model doesn’t call for an earnings beat this time. Here is why:
A stock needs to have the right combination of the two key criteria – a positive Earnings ESP and a Zacks Rank #1 (Strong Buy) or at least 2 (Buy) or 3 (Hold) – for increasing chances of an earnings beat. 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 38 cents.
Zacks Rank: TD Ameritrade’s Zacks Rank #3 increases the predictive power of ESP. However, we also need to have a positive ESP to be confident of a positive earnings surprise.
Expenses to trend high: Expenses are expected to increase slightly in the second half of the fiscal due to project spending and compliance with Department of Labor's (DOL) fiduciary rule. Management expects that the combined investment in the advised products and the DOL will be $20 million to $25 million per quarter.
Notably, total quarterly operating expenses are expected to be relatively stable with fiscal second-quarter 2016, as seasonal declines in marketing will be offset by increased investments in the business and DOL expenses. Excluding advertising, expenses are projected in the range of $435 million to $445 million. The projected range, however, translates into a year-over-year increase of 5–7%.
Margin pressure lingers: A persistent low interest rate environment has been weighing on TD Ameritrade’s net interest margin (NIM). Though spread based revenue increased in recent quarters, TD Ameritrade has been experiencing a shrinking NIM. As the Fed did not take any step in raising interest rates further, the NIM is expected to remain under pressure.
Results to benefit from favorable equity market and increased volatility: Though the fiscal third quarter is seasonally slower, TD Ameritrade should witnesses healthy trading activity as the quarter witnessed elevated volatility. Further, the upcoming release is likely to reflect increased margin loan balances and fee-based revenues as equity markets improved with the S&P 500 gaining around 2% during the June quarter.
Continued asset growth: The company witnessed double-digit asset growth over the last several years. Notably, during the first six months of fiscal 2016, the company recorded an annualized growth rate of 10% in net new client assets, within the long-term target of increasing net new client assets on an annual rate of 7% to 11%. With an innovative trading platform, continued focus on high net-worth clients and enhanced service model to boost engagement and retention, we expect TD Ameritrade to exhibit the improving trend in the fiscal third quarter as well.
However, 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 38 cents per share over the last 7 days.
Stocks That Warrant a Look
Here are some stocks worth considering, as according to our model they have the right combination of elements to post an earnings beat this quarter.
Comerica Incorporated (CMA - Free Report) , which is expected to report on Jul 19, has an Earnings ESP of +1.47% and a Zacks Rank #3.
Federated Investors, Inc. has an Earnings ESP of +2.13% and carries a Zacks Rank #3. It is scheduled to report results on Jul 28.
Cullen/Frost Bankers, Inc. (CFR - Free Report) has an Earnings ESP of +0.96% and carries a Zacks Rank #3. The company is expected to release results on Aug 3.
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 >>
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Will Higher Costs Drag TD Ameritrade (AMTD) Q3 Earnings?
TD Ameritrade Holding Corporation (AMTD - Free Report) is scheduled to report its fiscal third-quarter 2016 results on Tuesday, Jul 19, before the opening bell.
Though the Omaha-based investment broker’s fiscal second-quarter 2016 (ending March) earnings came in line with the Zacks Consensus Estimate, it improved 8.6% year over year. Results were aided by top-line growth and reduced expenses. Further, the company experienced strong trading activity that was driven by the heightened volatility in the quarter.
Notably, our quantitative model doesn’t call for an earnings beat this time. Here is why:
A stock needs to have the right combination of the two key criteria – a positive Earnings ESP and a Zacks Rank #1 (Strong Buy) or at least 2 (Buy) or 3 (Hold) – for increasing chances of an earnings beat. 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 38 cents.
Zacks Rank: TD Ameritrade’s Zacks Rank #3 increases the predictive power of ESP. However, we also need to have a positive ESP to be confident of a positive earnings surprise.
TD AMERITRADE Price and EPS Surprise
TD AMERITRADE Price and EPS Surprise | TD AMERITRADE Quote
Factors to Influence Fiscal Q3 Results
Expenses to trend high: Expenses are expected to increase slightly in the second half of the fiscal due to project spending and compliance with Department of Labor's (DOL) fiduciary rule. Management expects that the combined investment in the advised products and the DOL will be $20 million to $25 million per quarter.
Notably, total quarterly operating expenses are expected to be relatively stable with fiscal second-quarter 2016, as seasonal declines in marketing will be offset by increased investments in the business and DOL expenses. Excluding advertising, expenses are projected in the range of $435 million to $445 million. The projected range, however, translates into a year-over-year increase of 5–7%.
Margin pressure lingers: A persistent low interest rate environment has been weighing on TD Ameritrade’s net interest margin (NIM). Though spread based revenue increased in recent quarters, TD Ameritrade has been experiencing a shrinking NIM. As the Fed did not take any step in raising interest rates further, the NIM is expected to remain under pressure.
Results to benefit from favorable equity market and increased volatility: Though the fiscal third quarter is seasonally slower, TD Ameritrade should witnesses healthy trading activity as the quarter witnessed elevated volatility. Further, the upcoming release is likely to reflect increased margin loan balances and fee-based revenues as equity markets improved with the S&P 500 gaining around 2% during the June quarter.
Continued asset growth: The company witnessed double-digit asset growth over the last several years. Notably, during the first six months of fiscal 2016, the company recorded an annualized growth rate of 10% in net new client assets, within the long-term target of increasing net new client assets on an annual rate of 7% to 11%. With an innovative trading platform, continued focus on high net-worth clients and enhanced service model to boost engagement and retention, we expect TD Ameritrade to exhibit the improving trend in the fiscal third quarter as well.
However, 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 38 cents per share over the last 7 days.
Stocks That Warrant a Look
Here are some stocks worth considering, as according to our model they have the right combination of elements to post an earnings beat this quarter.
Comerica Incorporated (CMA - Free Report) , which is expected to report on Jul 19, has an Earnings ESP of +1.47% and a Zacks Rank #3.
Federated Investors, Inc. has an Earnings ESP of +2.13% and carries a Zacks Rank #3. It is scheduled to report results on Jul 28.
Cullen/Frost Bankers, Inc. (CFR - Free Report) has an Earnings ESP of +0.96% and carries a Zacks Rank #3. The company is expected to release results on Aug 3.
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 >>