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Analyst Blog

On Apr 2, 2013, we reiterated our long-term recommendation on E*TRADE Financial Corporation (ETFC - Analyst Report) at Neutral. Our decision primarily rests on lower operating expenses. Yet, a decline in the top line along with reduced new brokerage accounts acted as the headwinds.

Why Neutral?

In fourth quarter 2012, E*TRADE reported a net loss of 65 cents per share, which exceeded the Zacks Consensus Estimate of a loss of 54 cents. Earnings were adversely affected by a decline in top line and a fall in total daily average revenue trades (DARTs).

Following its fourth-quarter results, the Zacks Consensus Estimate for 2013 went up by 1.8% to 57 cents per share over the last 60 days. The Zacks Consensus Estimate for 2014 also inched up 1.4% to 70 cents per share over the same time frame. Hence, E*TRADE currently holds a Zacks Rank #2 (Buy).

In spite of the volatile equity markets, E*TRADE’s focus on loss mitigation strategies and its continuous efforts on increasing accounts and assets is expected to enhance DARTs in the near future. Also, cost reduction initiatives taken by E*TRADE is expected to prove beneficial for the company going forward. Moreover, E*TRADE continues to streamline its balance sheet by lowering credit risks in its loan portfolios.  

On the other hand, though E*TRADE is taking initiatives to strengthen its client-advisor relationship, it could experience a pressure on DARTs as a result of the disengagement of retail traders. Moreover, a sluggish economic recovery, strict regulatory environment coupled with investors’ cautious attitude towards equity market investments can pressurize the DARTs further.

Other Brokerage Firms to Consider

Besides E*TRADE, other major brokerage firms that are performing well and can be considered for investment include Knight Capital Group, Inc. (KCG - Snapshot Report), TD Ameritrade Holding Corporation (AMTD - Analyst Report) and Stifel Financial Corp. (SF - Snapshot Report). All these carry a Zacks Rank #2.

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