Both Raymond James Financial, Inc. (RJF - Free Report) and TD Ameritrade Holding Corporation (AMTD - Free Report) are investment brokers with market capitalization of $11.21 billion and $22.41 billion, respectively. Being based in the same region, both companies are influenced by the same economic backdrop.
The Zacks Industry Rank is #85 (top 33% of the 250 plus Zacks industries) for the industry, which these two companies belongs to. Our back-testing shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The benefits from a stabilizing economy and gradually improving interest rate scenario have actually positioned the industry well.
In terms of price performance, while Raymond James shares have gained around 38% in the past 12 months, TD Ameritrade shares have surged 35.5%. Both have outperformed the industry’s rally of 24.1%.
However, we need to delve a little deeper into their financials to understand which one is a better investment option.
Raymond James has a trailing 12-month Return on Equity (ROE) of 10.07% compared with the industry average of 8.49%. This suggests that it is more efficient in reinvesting its earnings.
However, its debt/equity ratio, which stands at 0.48, is above the industry average of 0.22. This reflects that the company has a relatively higher debt burden and will not be financially stable in adverse economic conditions.
Nonetheless, the stock looks undervalued with respect to its price-to-earnings (P/E) ratio. It has a forward P/E ratio of 15.53 compared with the industry average of 17.57.
Additionally, the company’s current fiscal year earnings are projected to grow 30.3%, while sales are expected to increase 17.5%.
Also, analysts seem optimistic about the stock’s earnings performance. For the current fiscal year, over the past 30 days, the stock has witnessed two upward revisions (against no downward revision). As a result, the Zacks Consensus Estimate for fiscal 2017 rose marginally to $5.01.
Raymond James currently carries a Zacks Rank #2 (Buy). Also, it has a Value Score of A. Our research shows that stocks with a Value Score of A or B when combined with a Zacks Rank #1 (Strong Buy) or 2 offer the best upside potential.
TD Ameritrade Holding
TD Ameritrade Holding has a trailing 12-month ROE of 15.28% compared with the industry average of 8.49%. This suggests that it is more efficient in reinvesting its earnings.
However, its debt/equity ratio stands at 0.47 compared with the industry average of 0.22, reflecting a relatively higher debt burden.
Also, TD Ameritrade Holding stock looks overvalued with respect to its P/E ratio. It has a P/E (F1) ratio of 25.10 compared with the industry average of 17.57.
Nevertheless, the company’s earnings for the current fiscal year are projected to grow 7%, while sales growth is estimated to be 8.7%.
Analysts seem optimistic about the stock’s earnings prospects. For the current fiscal year, over the past 30 days, the stock has witnessed one upward revision (against no downward revision). The Zacks Consensus Estimate for the year has therefore increased nearly 1% to $1.69.
TD Ameritrade Holding also carries a Zacks Rank #2, but has a Value Score of D. You can see the complete list of today’s Zacks #1 Rank stocks here.
Both Raymond James and TD Ameritrade Holding look well positioned in terms of their ROE. However, Raymond James seems to be a better pick based on a lower P/E ratio, and better earnings and sales growth potential.
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