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Why Is TD Ameritrade (AMTD) Down 5.5% Since the Last Earnings Report?

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A month has gone by since the last earnings report for TD Ameritrade Holding Corporation (AMTD - Free Report) . Shares have lost about 5.5% in that time frame, underperforming the market.

Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

TD Ameritrade Q2 Earnings Miss Estimates

TD Ameritrade recorded a negative surprise of 2.4% in second-quarter fiscal 2017 (ending Mar 31). The company reported earnings of $0.40 per share, missing the Zacks Consensus Estimate by $0.01. However, results were up 5% from the prior-year quarter.

The quarter displayed higher revenues and elevated expenses. Persistent decline in net interest margin (NIM) was the downside. Notably, the company recorded a rise in average client trades per day, indicating improvement in trading activity.

The company’s net income for the quarter came in at $214 million, up 4.4% year over year.

Revenues Climb and Expenses Escalate

Net revenue for the quarter came in at $904 million, surpassing the Zacks Consensus Estimate of $884 million. Moreover, net revenue increased 6.9% year over year. The rise was chiefly due to higher transaction-based as well as asset-based revenues.

Total asset-based revenues for the quarter amounted to $526 million, up 11.9% year over year, driven by higher insured deposit account fees, as well as investment product fees and net interest revenue.

Commissions and transaction fees inched up 1.4% from the prior-year quarter to $365 million. However, the quarter's NIM was 1.41%, down 2 basis points year over year.

Total operating expenses climbed 8.5% year over year to $546 million. The rise was mainly due to a rise in a number of expenses, including employee compensation and benefits, professional services, occupancy and equipment costs, and other expenses.

Trading Activity Improved

Average client trades per day for the reported quarter increased 2% year over year to 517,000.

As of Mar 31, 2017, net new client assets totaled $19.5 billion, up 38.3% year over year. Total client assets came in at $847 billion, up 19% year over year.

Average spread-based balance was $119.7 billion, jumping 13.1% year over year. Average fee-based investment balance was up 17.8%, to $180.4 billion.

Balance Sheet Position

As of Mar 31, 2017, TD Ameritrade’s cash and cash equivalents were $2.2 billion compared with $1.9 billion as of Sep 30, 2016. Shareholders’ equity was $5.3 billion compared with $5.1 billion as of Sep 30, 2016.

Outlook

Fiscal 2017

The company expects EPS in the range of $1.50–$1.80.

Management expects commission revenues to be in the range of $300–$320 million on a quarterly basis, impacted by decline in base commission rates.

Growth in asset based balances and higher interest rates are expected to increase revenue related assets to $560–$580 million, on a quarterly basis.

Operating expenses are expected to increase to $530–$540 million on a quarterly basis due to Scottrade-related, sales incentives, trading-related expenses and also investments in the business.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month. There have been two revisions lower for the current quarter. While looking back an additional 30 days, we can see even more downward momentum. There have been six moves downward in the last two months.

TD Ameritrade Holding Corporation Price and Consensus

 

VGM Scores

At this time, the stock has a nice Growth Score of 'B', though it is lagging a lot on the momentum front with a 'F'. Charting a somewhat similar path, the stock was allocated a grade of 'C' on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of 'C'. If you aren't focused on one strategy, this score is the one you should be interested in.

Our style scores indicate that the stock is more suitable for growth investors than value investors.

Outlook

Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. Interestingly, the stock has a Zacks Rank #3 (Hold). We are looking for an inline return from the stock in the next few months.


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