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E*TRADE Financial Corporation (ETFC - Free Report) and E*TRADE Bank’s ratings are under review for upgrade by Moody's Investors Service. In July 2016, following the acquisition of OptionsHouse, Moody’s had affirmed the company’s rating as stable.

Per Moody’s, E*TRADE is well poised to benefit from the increasing interest rates. Higher rates supported the company’s revenues when a pricing cut in early 2017 led to lower commission income. Also, the company’s effort to expand its balance sheet is encouraging.  Further, E*TRADE’s strong credit position displays its hold on strategies for overall growth.

Moody’s is of the opinion that E*TRADE’s effort toward conservative use of leverage in acquisitions and shareholder distribution policies is a key positive. Also, it expects E*TRADE to maintain this approach while undertaking inorganic growth strategies in the future.

While reviewing E*TRADE's ratings for upgrade, Moody’s is expected to analyze the key headwinds to credit profile along with the competitive scenario in commissions and deposit pricing. Also, the company’s revenue growth prospects along with financial metrics for inorganic growth and capital deployment activities will be considered. Lastly, E*TRADE Bank's funding profile and stability of its cash sweep deposits will be reviewed.

What Can Drive the Ratings Up

E*TRADE's ratings might get upgraded if Moody's feels that the impact of future competitive pressures on commission and deposit pricing will not have a significant impact on its performance and that the company is successful in expanding its profits without hurting its credit profile.

What Can Drive the Ratings Down

The ratings will be affected if the company undertakes a debt-funded approach for inorganic growth strategies, especially if debt/EBITDA rises to about 2.5x, with no concrete plan to return to low debt leverage position.

Also, a significant deterioration in franchise value through a security breach of client accounts, a significant legal or compliance issue resulting in reputational damage, loss of customers and litigation costs pressuring profit margins, might lead to a fall in ratings.

Shares of E*TRADE have gained 43.5% over the past year, outperforming the industry’s growth of 19.1%.

Currently, the stock sports a Zacks Rank #1(Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Some other stocks worth considering in the same space are Interactive Brokers Group (IBKR - Free Report) , TD Ameritrade Holding Corporation (AMTD - Free Report) and Evercore (EVR - Free Report) . All these stocks sport a Zacks Rank of 1.

Interactive Brokers’ Zacks Consensus Estimate for earnings for 2017 has been revised 1.2% upward, in the last 30 days. Also, its share price has increased 60.7% in the past 12 months.

TD Ameritrade’s 2017 earnings estimates have been revised nearly 9% upward, over the last 30 days. Further, the company’s shares have gained 14.9% in a year’s time.

Evercore’s Zacks Consensus Estimate for 2017 earnings has remained stable, over the last 30 days. In the past year, its shares have gained 28.9%.

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