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TD Ameritrade (AMTD) Stock Up on Improved Q3 Earnings
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Shares of TD Ameritrade Holding Corporation (AMTD - Free Report) gained over 2% in a day’s trading following its fiscal 2016 third-quarter (ending Jun 30) earnings release on Tuesday, before the market opened. The company reported adjusted earnings per share of 39 cents, beating the Zacks Consensus Estimate by a penny.
Including a benefit of $33 million, or 6 cents per share tied with tax liability adjustment, TD Ameritrade’s net income for the quarter was $240 million or 45 cents per share, up from $197 million or 36 cents per share in the prior-year quarter.
The share price movement reflected investors’ positive sentiment over the company’s improved profitability that was driven by higher revenues. Elevated market volatility, which was largely driven by the Brexit vote at the close of the quarter, led to increased trading activity. Notably the company recorded growth in average client trades per day, as well as net new client assets. However, higher expenses and continued decline in net interest margin (NIM) were the downsides.
Tim Hockey, President of TD Ameritrade stated, “Results this quarter reflected mixed investor sentiment. Long-term investors expressed some reticence to move new money, while traders increased their equity exposure. Both segments were opportunistic, using events like the historic Brexit vote, to lean into the market decline.” Hockey further added, “We expect these bouts of volatility to continue, underscoring the importance of our client value proposition. So, we must continue to innovate and provide our clients with powerful tools, a variety of products and mobility through cutting-edge apps to help them respond to potential opportunities.”
Revenue Growth Dominates Costs, Margin Still Stressed
Net revenue for the quarter came in at $838 million, surpassing the Zacks Consensus Estimate of $828 million. Also, net revenues increased 5.5% year over year. The rise was primarily due to higher transaction-based revenues as well as asset-based revenues.
In terms of total asset-based revenues for the quarter, it amounted to $473 million, up 5.1% year over year driven by higher insured deposit account fees as well as investment product fees.
Commissions and transaction fees increased 5.8% from the prior-year quarter to $347 million.
However, the quarter's NIM was 1.41%, down 10 basis points (bps) year over year.
Total operating expense increased 4.5% year over year to $490 million. The rise was mainly due to increase in a number of expenses, including employee compensation and benefits, professional services, advertising, and other expenses.
Improved Trading Activity
Average client trades per day increased 6.5% year over year to 461,941.
At the end of the quarter, net new client assets totaled $13.6 billion, up 16.2% year over year. Also, total client assets came at $736.3 billion, up 4.8% year over year.
While average spread-based balance was $106.1 billion, increasing 11.3% year over year, average fee-based investment balance edged up slightly to $162.1billion.
Balance Sheet
As of Jun 30, 2016, TD Ameritrade’s cash and cash equivalents were $1.92 billion, compared with $1.98 billion as of Sep 30, 2015; and shareholders’ equity was $4.97 billion compared to $4.90 billion as of Sep 30, 2015.
Share Repurchase Update
During the third quarter of fiscal 2016, TD Ameritrade repurchased 1.7 million shares for $49 million.
Our Viewpoint
Innovations in online trading, long-term investment in products and services, delivery of advanced customer service, and creative marketing and sales are some of TD Ameritrade’s key strategies for boosting its trading and investing business.
Amid a tough operating environment, the company witnessed a continuous rise in organic client assets which bodes well, going forward. However, we remain cautious regarding elevated expenses, margin pressure and stringent regulations, which may weigh on the company’s financials in the upcoming quarters.
At present, TD Ameritrade carries a Zacks Rank #3 (Hold).
Among others, The Charles Schwab Corp.’s (SCHW - Free Report) second-quarter 2016 earnings of 30 cents per share were in line with the Zacks Consensus Estimate. Also, it was up 20% from that of the prior-year quarter. Revenue growth, primarily driven by increase in equity market volatility, lower level of fee waivers and stable provisions acted as tailwinds. Further, there was a significant increase in total client assets and new brokerage accounts. However, higher expenses remained a concern.
Raymond James Financial, Inc. (RJF - Free Report) is slated to report results later today while E*TRADE Financial Corp. is set to report results on Jul 21.
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TD Ameritrade (AMTD) Stock Up on Improved Q3 Earnings
Shares of TD Ameritrade Holding Corporation (AMTD - Free Report) gained over 2% in a day’s trading following its fiscal 2016 third-quarter (ending Jun 30) earnings release on Tuesday, before the market opened. The company reported adjusted earnings per share of 39 cents, beating the Zacks Consensus Estimate by a penny.
Including a benefit of $33 million, or 6 cents per share tied with tax liability adjustment, TD Ameritrade’s net income for the quarter was $240 million or 45 cents per share, up from $197 million or 36 cents per share in the prior-year quarter.
The share price movement reflected investors’ positive sentiment over the company’s improved profitability that was driven by higher revenues. Elevated market volatility, which was largely driven by the Brexit vote at the close of the quarter, led to increased trading activity. Notably the company recorded growth in average client trades per day, as well as net new client assets. However, higher expenses and continued decline in net interest margin (NIM) were the downsides.
Tim Hockey, President of TD Ameritrade stated, “Results this quarter reflected mixed investor sentiment. Long-term investors expressed some reticence to move new money, while traders increased their equity exposure. Both segments were opportunistic, using events like the historic Brexit vote, to lean into the market decline.” Hockey further added, “We expect these bouts of volatility to continue, underscoring the importance of our client value proposition. So, we must continue to innovate and provide our clients with powerful tools, a variety of products and mobility through cutting-edge apps to help them respond to potential opportunities.”
Revenue Growth Dominates Costs, Margin Still Stressed
Net revenue for the quarter came in at $838 million, surpassing the Zacks Consensus Estimate of $828 million. Also, net revenues increased 5.5% year over year. The rise was primarily due to higher transaction-based revenues as well as asset-based revenues.
In terms of total asset-based revenues for the quarter, it amounted to $473 million, up 5.1% year over year driven by higher insured deposit account fees as well as investment product fees.
Commissions and transaction fees increased 5.8% from the prior-year quarter to $347 million.
However, the quarter's NIM was 1.41%, down 10 basis points (bps) year over year.
Total operating expense increased 4.5% year over year to $490 million. The rise was mainly due to increase in a number of expenses, including employee compensation and benefits, professional services, advertising, and other expenses.
Improved Trading Activity
Average client trades per day increased 6.5% year over year to 461,941.
At the end of the quarter, net new client assets totaled $13.6 billion, up 16.2% year over year. Also, total client assets came at $736.3 billion, up 4.8% year over year.
While average spread-based balance was $106.1 billion, increasing 11.3% year over year, average fee-based investment balance edged up slightly to $162.1billion.
Balance Sheet
As of Jun 30, 2016, TD Ameritrade’s cash and cash equivalents were $1.92 billion, compared with $1.98 billion as of Sep 30, 2015; and shareholders’ equity was $4.97 billion compared to $4.90 billion as of Sep 30, 2015.
Share Repurchase Update
During the third quarter of fiscal 2016, TD Ameritrade repurchased 1.7 million shares for $49 million.
Our Viewpoint
Innovations in online trading, long-term investment in products and services, delivery of advanced customer service, and creative marketing and sales are some of TD Ameritrade’s key strategies for boosting its trading and investing business.
Amid a tough operating environment, the company witnessed a continuous rise in organic client assets which bodes well, going forward. However, we remain cautious regarding elevated expenses, margin pressure and stringent regulations, which may weigh on the company’s financials in the upcoming quarters.
TD AMERITRADE Price, Consensus and EPS Surprise
TD AMERITRADE Price, Consensus and EPS Surprise | TD AMERITRADE Quote
At present, TD Ameritrade carries a Zacks Rank #3 (Hold).
Among others, The Charles Schwab Corp.’s (SCHW - Free Report) second-quarter 2016 earnings of 30 cents per share were in line with the Zacks Consensus Estimate. Also, it was up 20% from that of the prior-year quarter. Revenue growth, primarily driven by increase in equity market volatility, lower level of fee waivers and stable provisions acted as tailwinds. Further, there was a significant increase in total client assets and new brokerage accounts. However, higher expenses remained a concern.
Raymond James Financial, Inc. (RJF - Free Report) is slated to report results later today while E*TRADE Financial Corp. is set to report results on Jul 21.
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 >>