A favorable operating backdrop with the anticipation of another interest rate hike by the Fed has driven investors’ confidence in banking stocks. Therefore, some of these stocks are profitable additions to a portfolio, based on strong fundamentals and solid long-term prospects.
With record earnings, revenues and net new client assets in fiscal 2017, TD Ameritrade Holding Corporation (AMTD - Free Report) is a solid buying opportunity. The company’s strong trading volumes, client focus and cross-selling opportunities are anticipated to yield positive results for the stock.
Further, the recent interest rate hikes are likely to provide stability to the top line, which will create buying opportunity for long-term horses. Despite lack of dversity in TD Ameritrade’s operations owing to its concentration in the United States and escalating costs, its sharper focus on organic growth will likely make its growth path smoother.
With net new client assets worth about $80.1 billion as of Sep 30, 2017, TD Ameritrade’s strengths include a sturdy top line and earnings growth, trading activities as well as steady capital deployment.
Further, the company’s shares have rallied 31.9% in the past six months compared with the 15.3% rally of the industry.
The company’s earnings estimates also climbed 11.6% for fiscal 2018 in the last 30 days. It currently carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Why is TD Ameritrade a Must Buy
Benefit from Rate Hike: With a rise in rates, brokerage firms are likely to engage in more investment activities. As these firms earn interest income on un-invested cash in customer accounts, the rate hike will allow them to invest at higher rates. TD Ameritrade currently derives nearly 31% of total asset-based revenues from net interest income. The company is poised to benefit from the recent rate hikes.
Strong Organic Growth: TD Ameritrade continues to be a leading asset gatherer, with nine consecutive years of double-digit net new client asset growth since fiscal 2008. Notably, during fiscal 2017, the company witnessed an annualized growth rate of 10% in net new client assets, within its long-term target of 7-11%.
Additionally, the company’s net revenues witnessed a 5.6% compounded annual growth rate (CAGR) in the last four years, ending fiscal 2017. The company’s projected sales growth (F1/F0) of 31.4%, as against the nil industry average, indicates consistent improvement in revenues.
Earnings Strength: TD Ameritrade’s earnings per share (EPS) witnessed a CAGR of 7.7% in the last five fiscal years (2013-2017). Earnings are expected to grow in the near term as reflected by the company’s projected EPS growth (F1/F0) of 24.8%.
Strong Trading Activity: TD Ameritrade’s trading volumes have been depicting an uptrend. On a year-over-year basis, the company’s average client trades per day increased 4%, 14% and 8% in fiscal 2013, 2014 and 2015, respectively. The upside was driven by volatility in markets. Also, average client trades increased modestly in fiscal 2016 and around 10% in fiscal 2017.
Strong Leverage: TD Ameritrade’s debt/equity ratio is 0.35 compared with the S&P 500 index’s average of 0.70, indicating relatively lower debt burden. It highlights the financial stability of the company in an unstable economic environment.
Superior Return on Equity (ROE): TD Ameritrade’s ROE of 15.91% as compared with the industry’s average of 9.42% mirrors the company’s commendable position as compared to its peers.
Organic growth, cross-selling opportunities and solid trading volumes continue to enhance TD Ameritrade’s prospects. Also, the recent interest rate hikes and growing net new client assets are likely to drive earnings in the near term.
Other Stocks to Consider
Enterprise Financial Services Corporation (EFSC - Free Report) has been witnessing upward estimate revision in the last 30 days. Additionally, the stock rallied more than 5.6% in the past six months. It currently carries a Zacks Rank of 2 (Buy).
First Financial Bancorp (FFBC - Free Report) has been witnessing upward estimate revision in the past month. Also, the company’s shares have risen nearly 3.9% in the past six months. It holds a Zacks Rank of 2.
JMP Group LLC (JMP - Free Report) has been witnessing upward estimate revision for the last 30 days. The company’s shares have inched up around 3.3% in six months’ time. It also carries a Zacks Rank of 2.
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