We have reaffirmed our Neutral recommendation on
E*Trade Financial Corporation
(
ETFC
). The reiteration follows the detailed analysis of the company's
fundamentals in light of the current economic environment and its
continuous efforts to streamline the risks related to the balance
sheet.
For E*TRADE, Daily Average Revenue Trades (DARTs) surged in the
first two months of 2012, just like at one of its peers -
Charles Schwab Corp.
(
SCHW
). In 2011, the DARTs climbed by 5% as E*TRADE continues to
increase accounts and assets. Moreover, the company is aggressively
focusing on loss-mitigation strategies, including short sales, loan
modifications and transfers to better servicers.
E*TRADE continues to streamline its balance sheet risk by
reducing the credit risk in its loan portfolios. It lowered the
risks related to its balance sheet as its legacy loan portfolio
declined by $3 billion in 2011, while delinquencies improved in
double digits.
Moreover, the company continues to maintain a modest cash
position, and its bank capital ratios are substantially in excess
of the regulatory requirements. The successful completion of the
balance sheet modification will considerably improve the company's
financial strength in the medium to long term.
E*TRADE reported fourth-quarter 2011 net loss of 2 cents per
share, significantly worse than the Zacks Consensus Estimate of an
earnings of 20 cents. Quarterly results deteriorated, driven by a
downturn in brokerage business in the course of considerable market
volatility. Yet a decrease in operating expenses was positive for
the quarter.
Though the company is taking initiatives to strengthen its
client-advisor relationship, it could experience a pressure on
DARTs as a result of disengagement of retail traders. Recent
regulatory issues also remain a headwind to the company.
We believe that the risk-reward profile for E*TRADE is currently
balanced, and hence, we have reiterated our Neutral recommendation
on the shares. E*TRADE currently retains its Zacks #3 Rank, which
translates into a short-term 'Hold' rating.
E TRADE FINL CP (
ETFC
): Free Stock Analysis Report
SCHWAB(CHAS) (
SCHW
): Free Stock Analysis Report
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