A month has gone by since the last earnings report for TD Ameritrade Holding Corporation (AMTD - Free Report) . Shares have lost about 6.8% 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 of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
TD Ameritrade Beats Q3 Earnings Estimates
TD Ameritrade delivered a positive surprise of 7.3% in third-quarter fiscal 2017 (ended Jun 30). The company reported earnings of 44 cents per share, beating the Zacks Consensus Estimate of 41 cents. However, results were down 2% from the prior-year quarter.
The company’s results reflected growth in revenues. Net interest margin (NIM) expansion was another positive. Notably, the company recorded a rise in average client trades per day, indicating improvement in trading activity. However, the positives were partially offset by elevated expenses.
The company’s net income for the quarter came in at $231 million, down 3.8% year over year.
Increased Revenues Partially Offset by Higher Expenses
Net revenue for the quarter came in at $931 million, surpassing the Zacks Consensus Estimate of $899.5 million. Moreover, net revenue increased 10% year over year. The rise was chiefly due to higher asset-based revenues, partially offset by lower transaction-based revenues.
Total asset-based revenues for the quarter amounted to $573 million. The figure increased 21.1% year over year, driven by higher insured deposit account fees, as well as investment product fees and net interest revenues.
Commissions and transaction fees declined 3.5% from the prior-year quarter to $335 million. However, the quarter's NIM was 1.55%, up 14 basis points year over year.
Total operating expenses increased 9.6% year over year to $537 million. The rise was mainly due to increase in a number of expense components, including employee compensation and benefits, professional services and occupancy and equipment costs.
Trading Activity Improves
Average client trades per day for the reported quarter increased 10.5% year over year to 510,358.
As of Jun 30, 2017, net new client assets totaled $22 billion, up 61.8% year over year. Total client assets came in at $882.4 billion, up 19.8%.
Average spread-based balance was $117.8 billion, jumping 11% year over year. Average fee-based investment balance was up 17% to $189.7 billion.
Balance Sheet Position
As of Jun 30, 2017, TD Ameritrade’s cash and cash equivalents were $2.9 billion compared with $2.2 billion as of Mar 31, 2017. Shareholders’ equity was $5.5 billion compared with $5.3 billion in the previous quarter.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed an upward trend in fresh estimates. There have been four revisions higher for the current quarter. While looking back an additional 30 days, we can see even more upward momentum. There have been five upward revisions in the last two months.
At this time, TD Ameritrade's stock has a poor Growth Score of F. However, its Momentum is doing a bit better with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate investors will probably be better served looking elsewhere.
Estimates have been trending upward for the stock. The magnitude of these revisions also looks promising. It comes with little surprise that the stock has a Zacks Rank #2 (Buy). We are looking for an above average return from the stock in the next few months.