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TD Ameritrade or E*TRADE: Which Stock Is a Better Pick?

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Benefits from an improving economy and higher interest rates have positioned the investment bank industry well. As such, performance of investment banks, which are part of the Zacks Finance sector, was quite impressive in third-quarter 2018.

Therefore, we are focusing on two major investment banks, namely TD Ameritrade Holding (AMTD - Free Report) and E*TRADE Financial Corp. (ETFC - Free Report) , with market capitalization of $30.6 billion and $13.3 billion, respectively. Both are part of the same industry, which has a Zacks Industry Rank #59 (top 23%). 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.

In the quarters ahead, both TD Ameritrade and E*TRADE are expected to continue benefiting from increase in interest rates. TD Ameritrade carries a Zacks Rank #2 (Buy), while E*TRADE sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Though both investment brokers have similar business trends, an insight into the financials will help decide which investment option is better.

Price Performance

Both banks have outperformed the industry (down 15.8%) year to date, witnessing stellar growth. While shares of TD Ameritrade have rallied 7%, E*TRADE has risen 6.7%. So, TD Ameritrade has performed better than E*TRADE.

Year-To-Date Price Performance


Dividend Yield

Both the companies have been deploying capital in terms of dividend payments and share purchases to enhance shareholder value.

TD Ameritrade announced 43% dividend hike in October. Further, the company has a share buyback authorization in place. It has a dividend yield of 2.23%.

Dividend Yield: AMTD


Recently, E*TRADE initiated dividend payment. Further, the company has a share repurchase authorization in place. It has a dividend yield of 1.07%.

Dividend Yield: ETFC

As visible in the above charts, TD Ameritrade has an edge over E*TRADE. Not only is TD Ameritrade’s dividend yield better than E*TRADE but is also above the industry average of 0.89%.

Return on Equity (ROE)

ROE is a measure of a company’s efficiency in utilizing shareholders’ funds. TD Ameritrade’s ROE for the trailing 12-month period is 24.54% while that for E*TRADE is 15.45% compared with the industry’s level of 11.89%. Therefore, TD Ameritrade reinvests its earnings more efficiently.


Earnings Estimate Revisions & Growth Projections

The Zacks Consensus Estimate for fiscal 2019 earnings of TD Ameritrade has moved up 1% over the past 30 days. Meanwhile, the same for E*TRADE has jumped 1.3% for this year during the same time frame.

Moreover, fiscal 2019 earnings for TD Ameritrade are projected to jump 18.9% year over year. For E*TRADE, the Zacks Consensus Estimate is pegged at $3.85 for 2018, reflecting a year-over-year increase of a massive 75.8%.

Hence, E*TRADE reflects better earnings growth prospects.

Sales Growth

Sales for TD Ameritrade for fiscal 2019 are projected to increase 8.1% year over year to $5.9 billion. For E*TRADE, the Zacks Consensus Estimate is pegged at $2.9 billion for 2018, indicating year-over-year growth of 22.1%.

Therefore, E*TRADE has an edge here as well.


TD Ameritrade has a VGM Score of B, while E*TRADE has a VGM Score of C. Our research shows that stocks with a VGM Score of A or B, when combined with a Zacks Rank #1 or 2, offer the best upside potential.

Therefore, TD Ameritrade holds an edge over E*TRADE here.

Our Take

Our comparative analysis shows that E*TRADE is better positioned than TD Ameritrade in terms of sales and earnings growth expectations. However, TD Ameritrade wins on price performance, reinvestment potential, dividend yield and valuation.

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