Improving domestic economy and decent equity markets performance are likely to drive investment brokerage stocks in the quarters ahead. Amid the Federal Reserve’s accommodative monetary policy stance, volatile markets and efforts to diversify revenue sources will support their financials in the long run.
Let’s focus on two major investment brokers, TD Ameritrade Holding Corp. (AMTD - Free Report) and The Charles Schwab Corp. (SCHW - Free Report) , with market capitalization of $24.6 billion and $48.2 billion, respectively. Both the stocks currently carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
As both have almost same business operations, they are influenced by similar economic backdrop. Let's take a closer look at how TD Ameritrade and Schwab are stacked up against each other in terms of certain key metrics.
Over the past two years, shares of TD Ameritrade have rallied 1.2% while Schwab has lost 10.3%. The industry has declined 11.7% over the same period. Hence, TD Ameritrade has clearly outperformed Schwab.
Two-Year Price Performance
Both the companies have been deploying capital in terms of dividend payments and share purchases to enhance shareholder value.
TD Ameritrade had announced 43% dividend hike in October 2018. It has a dividend yield of 2.68%. Further, the company has a share buyback authorization in place. As of Jun 30, 2019, nearly 7 million shares remained for repurchase under its current authorization.
Dividend Yield: AMTD
Schwab had announced 31% dividend increase in January 2019, following the two hikes in 2018. It has a dividend yield of 1.84%. Also, the company has a share repurchase authorization in place. As of Jun 30, 2019, nearly $2.8 billion worth of share buyback authorization remained.
Dividend Yield: SCHW
As you can see in the above charts, TD Ameritrade has an edge over Schwab, as the former’s dividend yield is not only better than the latter’s but is also above the industry average of 0.71%.
Both TD Ameritrade and Schwab have a higher debt-to-equity ratio compared with the industry average of 0.38. But Schwab, with a leverage ratio of 0.40, has an edge over TD Ameritrade with the same of 0.42.
Return on Equity (ROE)
ROE is a measure of a company’s efficiency in utilizing shareholders’ funds. ROE in the trailing 12 months for TD Ameritrade and Schwab is 27.13% and 20.58%, respectively. While both the companies have a superior ROE than the industry average of 11.76%, TD Ameritrade is better positioned in terms of reinvesting earnings compared with Schwab.
Earnings Growth Projections
For TD Ameritrade, the Zacks Consensus Estimate for earnings is pegged at $4.00 for fiscal 2019, indicating growth of 19.8% from the year-ago reported figure. The stock has long-term expected earnings growth rate of 11.10%.
Further, TD Ameritrade has a Growth Score of B. Our research shows that stocks with a Style Score of A or B, when combined with a Zacks Rank #1 or 2, offer the best upside potential.
For Schwab, the Zacks Consensus Estimate stands at $2.68 for 2019, suggesting an increase of 9.4% from the year-ago reported number. The stock has long-term expected earnings growth rate of 5.70%. Also, it has a Growth Score of C.
Thus, based on the earnings growth projection, TD Ameritrade has an edge over Schwab.
Sales Growth Projections
For TD Ameritrade, the Zacks Consensus Estimate for sales is $5.90 billion for fiscal 2019, implying 8.3% rise.
For Schwab, the consensus estimate for sales stands at $10.74 billion for 2019, indicating 6.1% growth.
Therefore, TD Ameritrade has an edge here as well.
Our comparative analysis indicates that TD Ameritrade is poised better than Schwab when considering price performance, ROE, dividend yield, and earnings and sales growth expectations. Schwab wins on only superior leverage ratio.
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