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TD Ameritrade (AMTD) Up 0.3% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for TD Ameritrade (AMTD - Free Report) . Shares have added about 0.3% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is TD Ameritrade due for a pullback? 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 In Line, Trading Activity Low

TD Ameritrade reported second-quarter fiscal 2019 (ending Mar 31) earnings of 93 cents per share, in line with the Zacks Consensus Estimate. The figure jumped 27% from the prior-year quarter.

The company’s results displayed stellar revenues and escalating expenses in the fiscal second quarter. Rise in NIM was also recorded. Notably, the company witnessed a decrease in average client trades per day, indicating calm markets leading to lower trading activity.

Including certain non-recurring items, net income for the quarter came in at $499 million or 89 cents per share compared with $271 million or 48 cents reported in the prior-year quarter.

Rise in Revenues and Lower Expenses Recorded

Net revenues for the reported quarter came in at $1.45 billion, up 2.1% year over year. The rise chiefly stemmed from higher asset-based revenues, partly offset by lower transaction-based revenues. The reported figure, however, lagged the Zacks Consensus Estimate of $1.46 billion.

Total asset-based revenues for the Mar-end quarter amounted to $929 million, up 11.9% year over year, driven by higher bank deposit account fees and net interest revenues. This was partly mitigated by lower investment product fees.

However, commissions and transaction fees slipped 12.4% from the prior-year quarter to $487 million. The quarter's NIM came in at 2.17%, expanding 34 basis points year over year.

Total operating expenses dropped 26.8% year over year to $746 million. The downside mainly resulted from fall in almost all components of expenses.

Trading Activity Mixed

Average client trades per day for the fiscal second quarter declined 8.8% year over year to 860,000.

As of Mar 31, 2019, net new client assets totaled $19.6 billion, up 11.7% year over year. Total client assets came in at $1.3 trillion, up 9.2% year over year.

Average spread-based balance was $145.7 billion, down 3.1% year over year, and average fee-based investment balance was up 8.7%, to $273.7 billion.

Balance Sheet Position

As of Mar 31, 2019, TD Ameritrade’s cash and cash equivalents were $2.7 billion, in line with the amount reported as of Sep 30, 2018. Shareholders’ equity was $8.3 billion compared with $8 billion as of Sep 30, 2018.

Capital Deployment

During the fiscal second quarter, TD Ameritrade repurchased 6.5 million shares for a total cost of $317 million.

Fiscal 2019 Outlook

The company expects to deliver revenues of greater than or equal to $5.75 billion, up around 6% year over year. However, given high levels of investor engagement and rate expectations, revenues are expected to be considerably higher in mid-to high single digits.

For expenses, positive operating leverage is expected to be at least 200 basis points, even with modest revenue growth. Notably, operating expenses are expected to be in the range of $2.9-$3 billion. Advertising expenses are expected to be within the $300-$320 million range.

Tax rate is expected to be around 25%.

Dividend payments of 30-40% of non-GAAP net income are anticipated, though the percentage might fall slightly on revenue tailwinds. Share repurchases are expected to be up to 40% of non-GAAP net income in 2019.

Net new assets are expected to be within the 7-10% range. Commission rate excluding order routing are expected to be down 2-3% year over year.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

At this time, TD Ameritrade has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. However, 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 D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, TD Ameritrade has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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