E*TRADE (ETFC - Free Report) appears a solid bet now, backed by online innovations, launch of products and services, as well as the company’s renewed focus on strengthening its brokerage business, with the target of achieving 2-3% incremental growth. The company’s strong trading volumes, client focus, restructuring measures and balance-sheet growth are anticipated to yield positive results for the stock.
Moreover, the recent interest rate hikes are likely to further stabilize the top line, thus creating a buying opportunity for long-term horses. Therefore, E*TRADE is a right choice now, which continues to depict robust fundamentals and improving prospects.
Additionally, E*TRADE’s shares have gained 6.2% year to date compared with the 15.7% decline registered by the industry.
Further, it has been successful in gaining analysts’ confidence. Its current-year earnings estimates have been revised 6.9% upward, over the last 60 days. As a result, the stock currently sports a Zacks Rank #1 (Strong Buy).
Why E*TRADE is an Attractive Pick
Benefit from Rate Hike: With a rise in rates, brokerage firms are expected to engage in more investment activities. As brokerage firms earn interest income on un-invested cash in customer accounts, this rate hike will enable the firms to invest at higher rates. As E*TRADE currently derives nearly 60% of its total net revenues from net interest income, the company is set to benefit from the recent rate hike.
Strong Organic Growth: E*TRADE, with the introduction of brokerage products and services, and enhancement of capabilities on professional trading and mobile platforms, remains focused on improving its technology space, in a bid to offer a better digital experience to customers. The company is focused on derivatives mix, with a target of increasing it to 35% of DARTs and also set managed account assets under management (AUM) target of $6 billion, within the next two years. It aims to achieve 2-3% improvement in its rate of annual organic growth, across accounts, assets and trades.
Furthermore, the company’s projected sales growth (F1/F0) of 22.09%, as against the 2.53% industry average, indicates consistent upward momentum in revenues.
Earnings Strength: E*TRADE witnessed earnings growth of 33.2% in the last three-five years. In addition, the company’s long-term (three-five years) estimated EPS growth rate of 16.89% promises rewards for investors, over the long run. Also, the company has recorded an average positive earnings surprise of 10.5% in the trailing four quarters.
Strong Leverage: E*TRADE’s debt/equity ratio is valued at 0.32 compared to the S&P 500 average of 0.67, indicating relative lower debt burden. It highlights the financial stability of the company despite an unstable economic environment.
Superior Return on Equity: E*TRADE has a return on equity of 15.45% compared with the industry average of 11.89%. This indicates that the company is efficient in utilizing shareholder funds.
Stock Looks Undervalued: The stock currently has a Value Score of B. The Value Score condenses all valuation metrics into one actionable score that helps investors steer clear of “value traps” and identify stocks that are truly trading at a discount. Our research shows that stocks with a Style Score of A or B, when combined with a Zacks Rank #1 or 2 (Buy), offer the best upside potential.
Other Stocks to Consider
Greenhill & Co., Inc. (GHL - Free Report) has been witnessing upward estimate revisions for the past 60 days. Moreover, this Zacks #1 Ranked stock has rallied more than 25% year to date. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
TD Ameritrade Holding Corporation (AMTD - Free Report) has been witnessing upward estimate revisions for the past 60 days. In addition, the company’s shares have gained 5.5% year to date. At present, it carries a Zacks Rank of 2.
Great Southern Bancorp, Inc. (GSBC - Free Report) has been witnessing upward estimate revisions for the past 60 days. Additionally, the stock has jumped around 6.5% year to date. It currently holds a Zacks Rank #2.
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