Neutral on E*TRADE Financial - Analyst Blog


On Sep 24, 2013, we reiterated our long-term recommendation on E*TRADE Financial Corporation ( ETFC ) at Neutral. Our decision rests on the company's improved total daily average revenue trades (DARTs) as well as increased revenues. However, increased provisions and higher operating expenses are the causes of concern.

Why Neutral?

After reporting earnings growth in first-quarter 2013, E*TRADE continued with its strong performance in the second quarter. Aided by loan portfolio contractions, improved credit quality and a strong capital position, the company reported earnings per share of 21 cents. Results handily beat 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 for 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 over the last 60 days for 2013 remained stable at 63 cents. For 2014, the Zacks Consensus Estimate rose 4% to 76 cents per share. Hence, E*TRADE currently carries a Zacks Rank #3 (Hold).

Other Stocks to Consider

Some better-performing stocks in the same sector include BGC Partners, Inc. ( BGCP ), KCG Holdings, Inc. ( KCG ) and Interactive Brokers Group, Inc. ( IBKR ). All of these have a Zacks Rank #2 (Buy).

BGC PARTNRS INC (BGCP): Free Stock Analysis Report

E TRADE FINL CP (ETFC): Free Stock Analysis Report

INTERACTIVE BRK (IBKR): Free Stock Analysis Report

KCG HOLDINGS (KCG): Free Stock Analysis Report

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Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Business , Stocks

Referenced Stocks: BGCP , ETFC , IBKR , KCG

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