On Aug 18, we issued an updated research report on
E*TRADE Financial Corporation . The company’s focus on enhancing digital capabilities, along with its trading business, has resulted in strong outcomes. Also, the bank’s solid balance-sheet position is likely to bode well.
However, E*TRADE Financial continues to face intense competition from its peers. Also, rising costs is a woe.
In order to boost its top-line performance, E*TRADE Financial has launched several products and services. Further, the company continues to fortify its technology space in a bid to offer a better digital experience to customers.
Also, the company’s net interest margin (NIM) has improved considerably, over the last five years. Though the Federal Reserve recently slashed interest rates to zero, which resulted in a fall in NIM in the first half of 2020, improvement in domestic economy might support margin. Further, E*TRADE Financial continues to streamline balance-sheet risk by lowering its credit risk in legacy loan portfolios.
E*TRADE Financial carries a low credit risk and has a lesser likelihood of default of interest and debt repayments if the economic situation worsens as its debt-capital ratio of 0.17 compares favorably with the industry average of 0.74. Also, its time-interest-earned ratio of 13X-17X over the past few quarters indicates the company's ability to meet its debt obligations based on the current income.
Further, the Zacks Consensus Estimate for 2020 and 2021 earnings has been revised 8.2% and 2.7% upward, respectively, over the past month. Also, shares of this Zacks Rank #2 (Buy) company have appreciated 28.2% in the past year compared with 8.7% growth recorded by the
Nevertheless, escalating expenses, mainly due to the company’s focus on growing its franchise, will likely hurt the bottom line in the near term. It also remains exposed to risks of losing its client base to other renowned players in the industry.
Also, the company’s heavy reliance on interest-based revenue streams (net interest income constituted 55% of net revenues in first half of 2020) is another cause for concern. Therefore, following the Fed’s recent rate cuts, the top line will likely be impacted negatively.
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