On May 21, we issued an updated research report on E*TRADE Financial Corporation (ETFC - Free Report) . The company’s inorganic growth strategies along with several restructuring moves have led to strong outcomes. Also, its focus on boosting trading business should support top line growth. However, E*TRADE Financial continues to face intense competition from its peers. Also, rising costs is a woe.
The Zacks Consensus Estimate for current-year earnings has been revised 8.6% downward, over the past 30 days. Currently, the stock carries a Zacks Rank #3 (Hold).
Also, its shares have depreciated 5.7% over the past six months compared with the industry’s decline of 21.2%.
In order to boost its top-line performance, E*TRADE Financial has launched several products and services. Further, the company continues to improve its technology space so that it can offer a better digital experience to its customers. Such efforts will likely support its growth over the long term.
Also, the company’s net interest margin (NIM) has improved considerably, over the last five years. Though the Federal Reserve recently slashed interest rates to zero, which led to a fall in NIM in first-quarter 2020, improvement in domestic economy might support margin. Further, E*TRADE Financial continues to streamline balance-sheet risk by lowering its credit risk in legacy loan portfolios.
The company is focused on derivatives mix and crossed the target of increasing it to 35% of DARTs in third-quarter 2019 and also set managed account assets under management target of $6 billion within the next two years. The company aims to achieve 2-3% improvement in its rate of annual organic growth, across accounts, assets and trades.
We believe E*TRADE Financial carries less credit risk and has a lesser likelihood of default of interest and debt repayments if the economic situation worsens as its debt-capital ratio of 0.18 compares favorably with the industry average of 0.74. Also, its time-interest-earned ratio of 13X-16X over the past few quarters indicates the company's ability to meet its debt obligations based on current income.
However, escalating expenses, mainly due to the company’s focus on growing its franchise, will likely hurt the bottom line in the near term. It also remains exposed to risks of losing its client base to other renowned players in the industry.
Also, the company’s significant dependence on interest-based revenue streams (net interest income constituted 57% of net revenues in first-quarter 2020). Therefore, following the recent moves of Fed on rate cuts, the top line will likely be impacted.
Stocks to Consider
Tradeweb Markets Inc. (TW - Free Report) has witnessed upward earnings estimate revisions for 2020 over the past 30 days. Moreover, this Zacks #1 Ranked (Strong Buy) stock has gained more than 30% over the past six months. You can see the complete list of today’s Zacks #1 Rank stocks here.
GAIN Capital Holdings, Inc.’s (GCAP - Free Report) current-year earnings estimates have moved north in the past 30 days. Further, the company’s shares have appreciated 51.9% over the past six months. At present, it sports a Zacks Rank of 1.
WisdomTree Investments, Inc. (WETF - Free Report) has witnessed upward earnings estimate revision for the ongoing year in the past 30 days. This Zacks #2 Ranked (Buy) stock has depreciated 43.7% over the past six months.
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