Ameritrade (
AMTD
) is an online brokerage that allows individual investors to
trade equities and options as well as other securities and competes
with E-Trade (
ETFC
), Charles Schwab (
SCHW
),
Wells Fargo
(
WFC
) and Bank of America (
BAC
) online services. Ameritrade also offers money market account
services wherein TD Bank USA makes available to clients of
Ameritrade's broker-dealer subsidiaries money market deposit
accounts as designated sweep vehicles. Ameritrade also offers
investment services wherein client assets are invested in money
market mutual funds, other mutual funds and company programs.
Our
price estimate for the company's stock
is $22.65
is about 10% higher its current market price.
What Differentiates Ameritrade from the Other
Brokerages?
Online brokerage firms compete on various aspects including
commissions & fees, types of investment products offered,
research & advice for investors, and customer service. The
awards and accolades for Ameritrade in the past show its strength
in research and customer service.
The biggest driving factor for an online brokerage's trading
commissions is the number of active trading accounts. As
commissions are earned per transaction, more accounts used by
investors actively for trading directly translates to more
revenue. The number of brokerage accounts for Ameritrade have
been increasing historically, from 6.3 million in 2006 to 8.0
million in 2010. Ameritrade's acquisition of TD Waterhouse in 2006
led to accounts increasing from 3.7 million to 6.2
million.
Ameritrade allows individual investors to use its portal to make
trades, and it charges its clients a commission per
execution. Investors prefer an online brokerage that charges
low commission and, at the same time, has secured and efficient
transaction system.
We expect a recovering market and Ameritrade's investment into
marketing, brand-building and technology will lead to a steady
increase in the number of brokerage accounts in the
future. Moreover, as markets continue to recover from the lows
witnessed during the global economic downturn, we expect more
individual investors to return to markets. This should result in an
increase in the number of clients.
The high volatility predicted in the market in the short run
would also trigger more clients with high risk appetite who would
want to try their hand at the market. We believe the number of
active brokerage accounts with Ameritrade would grow to reach 8.9
million by 2013. If this grew to 10 million, this would tack on
about 4% to our current estimates implying a potential total return
of 15%.