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TD Ameritrade (AMTD) Up 5.6% YTD: What's Driving the Stock?

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In the second (April-June) quarter, the stock market witnessed increased volatility on impending trade war fears, geo-political tensions, outlook for interest rate hikes and inflationary pressure. These weighed on the performance of financial stocks.

The decent performance of the financial stocks in the first quarter on revival of client activities in February and March provided some respite, which aided these stocks to record positive gains year to date.

One such investment bank is TD Ameritrade Holding Corporation (AMTD - Free Report) , which has rallied 5.6% year to date, against the industry’s decline of 4.4%.

This price performance is backed by a gradually improving operating environment and rate hike scenario, which is beneficial for brokerage business. Furthermore, anticipated improvement in trading activities and several of its ongoing initiatives bode well for TD Ameritrade.

Moreover, estimates for this Zacks Rank #3 (Hold) stock have been north bound. In the last 90 days, the Zacks Consensus Estimate moved up 4.3% and 6.8% for fiscal 2018 and fiscal 2019, respectively.

TD Ameritrade’s debt/equity ratio is 0.33 compared with the S&P 500 average of 0.68, displaying low debt burden relative to the industry. It highlights the financial stability of the company even in an unstable economic environment.

Also, TD Ameritrade’s ROE of 19.66% compared with the industry average of 9.60% indicates the company’s commendable position over its peers.

TD Ameritrade’s earnings have increased 10.46% annually over the last three to five years. The earnings growth momentum is anticipated to continue in the near term as well. The company’s projected EPS (earnings per share) growth (F1/F0) is 72.83% for fiscal 2018 and (F2/F1) nearly 22.72% for fiscal 2019.

TD Ameritrade’s trading volumes have been displaying an uptrend in the last few years with an increase in average client trades per day. We believe that in the near term, the company will be able to grow its trading volumes due to expected improvement in equity markets, rising rate environment as well as its innovative trading platforms. Additionally, the company continues to undertake investment spending in technology and advertising that are likely to enhance the overall business.

Further, with a rise in rates, brokerage firms are likely to engage in more investment activities. As brokerage firms earn interest income on un-invested cash in customer accounts, the rate hikes will enable these firms to invest at higher rates. As TD Ameritrade currently derives nearly 35% of its total asset-based revenues from net interest income, the company is poised to benefit from the recent rate hikes.

Additionally, TD Ameritrade remains a leading asset gatherer with nine consecutive years of double-digit asset growth since fiscal 2008 in net new client assets. Also, the company’s net revenues have been improving as it recorded 5.6% compound annual growth rate (CAGR) over the last four years ending fiscal 2017, with the trend continuing in first six months of fiscal 2018. Based on the company’s solid business model, focus on high net-worth clients and improving service model to boost engagement and retention, we expect TD Ameritrade to experience significant top-line growth in the future as well.

Stocks to Consider

Some better-ranked stocks in the same space include Interactive Brokers Group, Inc. (IBKR - Free Report) , LPL Financial Holdings Inc. (LPLA - Free Report) and The Charles Schwab Corporation (SCHW - Free Report) . All the stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Interactive Brokers’ earnings estimates have been revised around 7.6% upward for 2018 in the past 90 days. Also, its share price has surged 65.8% in a year’s time.

LPL Financial’s earnings estimates for 2018 have been revised nearly 4% upward in the past 60 days. Further, in a year’s time, the company’s shares have rallied 52.8%.

Charles Schwab witnessed slight upward earnings estimate revisions for the current year in the past two months. Moreover, in the past year, its shares have gained 15%.

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