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We expect TD Ameritrade Holding Corporation (AMTD - Free Report) to beat earnings expectations when it reports third-quarter fiscal 2017 results, before the opening bell on Jul 18. Notably, revenues and earnings are also expected to grow year over year.

Why a Likely Positive Surprise?

Our proven model shows that TD Ameritrade has the right combination of two key ingredients to beat earnings this quarter.

Zacks ESP:The Earnings ESP for the stock, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is pegged at +2.44%. This is a very significant and leading indicator of a likely positive earnings surprise for the company. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank #2 (Buy): Note that stocks with a Zacks Ranks #1 (Strong Buy), 2 (Buy) and 3 (Hold) have a significantly higher chance of beating earnings.

The combination of TD Ameritrade’s Zacks Rank #2 and ESP of +2.44% makes us confident of an earnings beat.  

It should be noted that we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

However, the company has a disappointing earnings surprise history as depicted in the chart below:

Shares of TD Ameritrade declined 3.5% over the past six months compared with the slight decline recorded by the Zacks categorized Investment Bank industry.

Factors to Influence Fiscal Q3 Results

Expenses to trend high: Expenses are likely to remain under pressure given the company’s ongoing investments in technology, and advice and guidance offerings.  Further, operating expenses are expected to escalate to $530–$540 million on a quarterly basis due to Scottrade-related, sales incentives and trading-related expenses.

Margin pressure might ease: A lingering low-interest rate environment has been weighing on TD Ameritrade’s net interest margin (NIM). Though spread-based revenues have increased in the recent quarters, the company has been experiencing a shrinking NIM. Nevertheless, the latest rise in the interest rates is expected to alleviate pressure on the bank’s NIM to some extent.

Market Volatility: Being an investment bank, TD Ameritrade is exposed to extreme market volatility. Therefore, the company is likely to be hurt by the persistent market swings experienced during the quarter.

Continued asset growth: The company has been witnessing double-digit asset growth for the last several years. Notably, during fiscal 2016, the company recorded an annualized growth rate of 9% in net new client assets, within the long-term target of increasing net new client assets at an annual rate of 7–11%. The increasing trend continued in the first six months of fiscal 2017 as well. With an innovative trading platform, consistent focus on high net-worth clients and enhanced service model to boost engagement and retention, we anticipate TD Ameritrade to display the improving trend in the fiscal third quarter as well.

However, activities of TD Ameritrade during the quarter were inadequate to win analysts’ confidence. As a result, the Zacks Consensus Estimate for the quarter moved down 2.4% to 41 cents over the last seven days.

Stocks That Warrant a Look

Here are some other stocks you may want to consider, as according to our model, these have the right combination of elements to post an earnings beat this quarter.

Comerica Incorporated (CMA - Free Report) has an Earnings ESP of +4.67% and a Zacks Rank #2. It is scheduled to report second-quarter 2017 results on Jul 18. You can see the complete list of today’s Zacks #1 Rank stocks here.

Huntington Bancshares Incorporated (HBAN - Free Report) has an Earnings ESP of +4.35% and a Zacks Rank #3. It is slated to report second-quarter results on Jul 21.

Fifth Third Bancorp (FITB - Free Report) has an earnings ESP of +2.38% and a Zacks Rank #3. It is slated to report second-quarter results on Jul 21.

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