On Jun 19, 2014, we issued an updated research report on
). This New York-based investment brokerage firm has continuously
exhibited efficient efforts in reducing the size and associated
risks of its legacy loan portfolio.
In first-quarter 2014, E*TRADE opted for offloading a substantial
part of its one- to four-family TDR (troubled debt restructurings)
portfolio. The transaction was closed in April with a meagre gain.
This substantially reduced the risk on its legacy loan portfolio
and paved the way for earnings growth.
The company's loan portfolio stood at $7.4 billion at the end of
the quarter, down 26.4% year over year. Notably, it declined 19% in
2013, following the run-down of 19.5% in 2012, 18.5% in 2011 and
20.6% in 2010. We believe that successful completion of the balance
sheet restructuring will significantly strengthen the company's
financials in the mid to long term.
Further, driven by strong brokerage activity, E*TRADE reported
first-quarter 2014 earnings per share of 33 cents, beating the
Zacks Consensus Estimate by 43.5%. Daily average revenue trades
(DARTs) for the quarter escalated 33.3% year over year to 197,944,
which was the highest in a period of around 5 years.
Despite these positives, we believe there are certain concerns that
may pose threats to the company's financials in the near term.
These include a low interest rate environment
and the prevailing stringent regulatory landscape.
Further, over the past 60 days, the Zacks Consensus Estimate
declined nearly 2.8% to $1.03 per share for 2014. Also, for 2015,
it fell 2.4% to $1.21 per share.
E*TRADE currently carries a Zacks Rank #3 (Hold).
Arlington Asset Investment Corp.
Cowen Group, Inc.
Evercore Partners Inc.
) are better-ranked stocks in this space. Arlington sports a Zacks
Rank #1 (Strong Buy) while both Cowen Group and Evercore hold a
Zacks Rank #2 (Buy).
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