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TD Ameritrade (AMTD) Misses on Q4 Earnings, To Buy Scottrade
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TD Ameritrade Holding Corporation (AMTD - Free Report) reported its fiscal 2016 fourth-quarter (ending Sep 30) earnings of 35 cents per share, lagging the Zacks Consensus Estimate of 38 cents. Also, the reported figure was down 12.5% from the prior-year quarter.
The figure includes a tax benefit of approximately $17 million or 3 cents per share and an operating expense charge of $46 million or 5 cents per share.
Net revenue was down primarily due to a fall in commissions and transaction fees. Also, higher expenses and continued decline in net interest margin (NIM) added to the downside. Further, the company recorded a decline in average client trades per day while the total client asset balances witnessed improvement.
Shares of TD Ameritrade lost about 4.4% following its earnings release. The share price movement reflected investors’ negative sentiment over the company’s lower profitability. Further, the announcement of the deal by the company to acquire Scottrade has led to scrutiny by regulators, which also affected the price.
The company’s net income for the quarter came in at $185 million, down 14.4% year over year. Also, its fiscal 2016 net income was $842 million or $1.58 per share.
Net revenue for the quarter came in at $829 million, lagging the Zacks Consensus Estimate of $835.9 million. Also, net revenues decreased approximately 0.2% year over year. The fall was primarily due to lower transaction-based revenues.
Also, its fiscal 2016 year end net revenue came in at $3.3 billion, of which 57% was mainly asset-based revenues.
Total asset-based revenues for the quarter amounted to $479 million, up 5.3% year over year driven by higher insured deposit account fees as well as investment product fees.
Commissions and transaction fees decreased 7.7% from the prior-year quarter to $336 million.
Also, the quarter's NIM was 1.35%, down 11 basis points year over year.
Total operating expenses increased 15.9% year over year to $546 million. The rise was mainly due to increase in a number of expenses, including employee compensation and benefits, professional services, advertising, and other expenses.
Mixed Trading Activity
Average client trades per day for the reported quarter decreased 7.2% year over year to 444,281.
As of Sep 30, 2016, net new client assets totaled $15.1 billion, down 6.8% year over year. However, total client assets came in at $773.8 billion, up 15.9% year over year.
Average spread-based balance was $110.9 billion, increasing 11.1% year over year and average fee-based investment balance was up 7.6%, to $169 billion.
Balance Sheet Position
As of Sep 30, 2016, TD Ameritrade’s cash and cash equivalents were $1.86 billion, compared with $1.98 billion as of Sep 30, 2015. Shareholders’ equity was $5.01 billion compared with $4.90 billion as of Sep 30, 2015.
Share Repurchase Update
During fiscal 2016, TD Ameritrade repurchased approximately 12 million shares.
TD Ameritrade to Acquire Scottrade for $4 billion
Concurrent with the earnings release, TD Ameritrade entered into a deal to purchase Scottrade Financial Services, Inc. for a total value of $4 billion which is expected to close by Sep 30, 2017.
The acquisition will take place in two steps. First, it will purchase Scottrade Bank from Scottrade Financial Services, Inc. for $1.3 billion in cash. Following this, TD Ameritrade will acquire Scottrade Financial Services for the remaining $2.7 billion which consists of $1 billion in shares (28 million shares) and $1.7 billion in cash.
The transaction is expected to add a significant scale to TD Ameritrade’s retail business and extend its leadership in trading. Also, it is expected to be accretive to TD’s EPS in double-digit figure. The company also expects annual expense savings of $450 million as a result of the deal with additional $300 million of savings in the long run.
However, since the acquisition combines two of the United States' "big five brokerages", it is under scrutiny by regulators.
Outlook
The company has provided outlook for the fiscal year 2017, which includes expected earnings of $1.50–$1.80 per share for the year.
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 which will support top-line growth going forward. Also, its association with TD Bank provides an opportunity for both firms to cross-sell products which further helps in long-term growth.
However, we remain cautious regarding elevated expenses, margin pressure and stringent regulations, which may weigh on the company’s financials in the upcoming quarters.
Among others, The Charles Schwab Corp.’s (SCHW - Free Report) third-quarter 2016 earnings of 34 cents per share beat the Zacks Consensus Estimate by a penny. 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.
E*TRADE Financial Corp.’s earnings for the third-quarter 2016 came in at 51 cents per share, comfortably beating the Zacks Consensus Estimate of 38 cents. The bottom line also improved significantly year over year on an adjusted basis. Results were aided by higher revenues, reduced expenses and a benefit from provisions.
Raymond James Financial, Inc. (RJF - Free Report) is slated to report fiscal fourth-quarter 2016 results tomorrow.
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TD Ameritrade (AMTD) Misses on Q4 Earnings, To Buy Scottrade
TD Ameritrade Holding Corporation (AMTD - Free Report) reported its fiscal 2016 fourth-quarter (ending Sep 30) earnings of 35 cents per share, lagging the Zacks Consensus Estimate of 38 cents. Also, the reported figure was down 12.5% from the prior-year quarter.
The figure includes a tax benefit of approximately $17 million or 3 cents per share and an operating expense charge of $46 million or 5 cents per share.
Net revenue was down primarily due to a fall in commissions and transaction fees. Also, higher expenses and continued decline in net interest margin (NIM) added to the downside. Further, the company recorded a decline in average client trades per day while the total client asset balances witnessed improvement.
Shares of TD Ameritrade lost about 4.4% following its earnings release. The share price movement reflected investors’ negative sentiment over the company’s lower profitability. Further, the announcement of the deal by the company to acquire Scottrade has led to scrutiny by regulators, which also affected the price.
The company’s net income for the quarter came in at $185 million, down 14.4% year over year. Also, its fiscal 2016 net income was $842 million or $1.58 per share.
Higher Expenses Dominate Revenues
Net revenue for the quarter came in at $829 million, lagging the Zacks Consensus Estimate of $835.9 million. Also, net revenues decreased approximately 0.2% year over year. The fall was primarily due to lower transaction-based revenues.
Also, its fiscal 2016 year end net revenue came in at $3.3 billion, of which 57% was mainly asset-based revenues.
Total asset-based revenues for the quarter amounted to $479 million, up 5.3% year over year driven by higher insured deposit account fees as well as investment product fees.
Commissions and transaction fees decreased 7.7% from the prior-year quarter to $336 million.
Also, the quarter's NIM was 1.35%, down 11 basis points year over year.
Total operating expenses increased 15.9% year over year to $546 million. The rise was mainly due to increase in a number of expenses, including employee compensation and benefits, professional services, advertising, and other expenses.
Mixed Trading Activity
Average client trades per day for the reported quarter decreased 7.2% year over year to 444,281.
As of Sep 30, 2016, net new client assets totaled $15.1 billion, down 6.8% year over year. However, total client assets came in at $773.8 billion, up 15.9% year over year.
Average spread-based balance was $110.9 billion, increasing 11.1% year over year and average fee-based investment balance was up 7.6%, to $169 billion.
Balance Sheet Position
As of Sep 30, 2016, TD Ameritrade’s cash and cash equivalents were $1.86 billion, compared with $1.98 billion as of Sep 30, 2015. Shareholders’ equity was $5.01 billion compared with $4.90 billion as of Sep 30, 2015.
Share Repurchase Update
During fiscal 2016, TD Ameritrade repurchased approximately 12 million shares.
TD Ameritrade to Acquire Scottrade for $4 billion
Concurrent with the earnings release, TD Ameritrade entered into a deal to purchase Scottrade Financial Services, Inc. for a total value of $4 billion which is expected to close by Sep 30, 2017.
The acquisition will take place in two steps. First, it will purchase Scottrade Bank from Scottrade Financial Services, Inc. for $1.3 billion in cash. Following this, TD Ameritrade will acquire Scottrade Financial Services for the remaining $2.7 billion which consists of $1 billion in shares (28 million shares) and $1.7 billion in cash.
The transaction is expected to add a significant scale to TD Ameritrade’s retail business and extend its leadership in trading. Also, it is expected to be accretive to TD’s EPS in double-digit figure. The company also expects annual expense savings of $450 million as a result of the deal with additional $300 million of savings in the long run.
However, since the acquisition combines two of the United States' "big five brokerages", it is under scrutiny by regulators.
Outlook
The company has provided outlook for the fiscal year 2017, which includes expected earnings of $1.50–$1.80 per share for the year.
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 which will support top-line growth going forward. Also, its association with TD Bank provides an opportunity for both firms to cross-sell products which further helps in long-term growth.
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). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Among others, The Charles Schwab Corp.’s (SCHW - Free Report) third-quarter 2016 earnings of 34 cents per share beat the Zacks Consensus Estimate by a penny. 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.
E*TRADE Financial Corp.’s earnings for the third-quarter 2016 came in at 51 cents per share, comfortably beating the Zacks Consensus Estimate of 38 cents. The bottom line also improved significantly year over year on an adjusted basis. Results were aided by higher revenues, reduced expenses and a benefit from provisions.
Raymond James Financial, Inc. (RJF - Free Report) is slated to report fiscal fourth-quarter 2016 results tomorrow.
Confidential from Zacks
Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>.