On Jun 27, 2013, we reiterated our long-term recommendation on
E*TRADE Financial Corporation
) at Neutral. Our decision rests on its improved total daily
average revenue trades (DARTs) as well as increased new brokerage
accounts. However, a fall in total revenue and heightened
operating expenses are the causes of concern.
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E*TRADE has returned to earnings in the first quarter of 2013,
after posting losses in the prior couple of quarters. Aided by
loan portfolio contractions, improved credit quality and a strong
capital position, the company reported earnings per share of 12
cents versus a net loss of 65 cents in the year-ago period.
However, results were in line with the Zacks Consensus Estimate.
Though E*TRADE's DARTs were affected by the volatility in equity
markets last year, recent market trends have been favorable to
the company. Moreover, E*TRADE's focus on loss mitigation
strategies - such as short sales, loan modifications and
transfers to better servicers - are expected to further improve
DARTs in the coming months.
We also commend the company's efforts to ease its balance sheet
risk by reducing credit risk in its loan portfolios. Further,
cost reduction initiatives undertaken by the company are expected
to be profitable in the future.
However, the current low interest rate environment will likely
keep E*TRADE's net interest spread and net interest income under
pressure. Further, we are concerned about the recent regulatory
upheavals, which will affect E*TRADE's capital and business over
the long term.
The Zacks Consensus Estimate for 2013 and 2014 remained stable at
50 cents and 62 cents per share, respectively, over the last 60
days. Hence, E*TRADE carries a Zacks Rank #3 (Hold).
Other Stocks to Consider
Some better performing stocks in the same sector include
Cowen Group, Inc.
GAIN Capital Holdings, Inc.
GFI Group Inc.
), all of which carry a Zacks Rank #2 (Buy).