3 Sources of Value for E-Trade's Stock

E-Trade ( ETFC ) has had several notable business developments recently, which prompted us to recap the value drivers for the stock vs. competitors like Charles Schwab Corporation (NYSE:SCHW), Ameritrade ( AMTD ), Wells Fargo (NYSE:WFC) and Bank of America ( BAC ). These include a recent bond offering, its Chairman leaving and its largest shareholder Citadel selling a decent size stake in the company. Below we look at what makes up our $16.88 price estimate for E-Trade stock , which is around 5-10% ahead of the market price.

The company recently priced $435 million through an offering of senior 5- year notes with a 6.75% coupon that will help pay down roughly $417 million in bonds with a coupon of 7.375%. Also, the company's Chairman, Robert Druskin, is leaving his post to take a post as Chairman of Depository Trust and Clearing Corp (DTCC). Mr. Drunskin is well known as a former executive of Citigroup. Finally, Citadel sold around 24 million shares last month and reduced its stake to around 10% on a fully diluted basis. Citadel previously announced its intent to sell down some of its large stake of the company, and this has been an overhang for the stock.

3 Key Drivers to the Stock

1) Net Interest on Assets - represents 65% of the company's stock value

Client balances that are awaiting investments are invested by E-Trade into money market instruments and E-Trade earns interest on it. These investments are basically funded by investments from brokerage clients and banking clients and E-Trade in return pays interest to the clients on those. The net amount is the net interest revenue for E-Trade.

See the top forecasts for net interest on assets

2) Trading Commissions - 20%

E-Trade allows individual investors to use its portal,, to make trades real time in the stock market and charges its clients a certain commission per trade. Investors prefer an online brokerage that charges low commission, is secure and has an efficient transaction system.

See the top forecasts for trading commissions

3) Principal Transactions, Fees and Others - 15%

Principal transactions consist primarily of revenue from market-making activities - in which E-Trade acts as an intermediary to match buyers and sellers of securities.

Fees and service charges consist of account maintenance fees, foreign exchange margin revenue, fixed income product revenue and advisor management fee revenue. Other sources of revenue include gain or loss on loans and securities, and revenues ancillary to the company's retail customer transactions.

See the top forecasts for principal transactions, fees and others

See our full analysis for E-Trade here

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

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

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