E*TRADE Financial started 2014 on a strong note, backed by its efforts toward achieving growth and profitability. In the preceding quarter, the company delivered a positive earnings surprise of 31.8%, mainly driven by higher net operating interest income, lower provision for loan losses and a rise in total daily average revenue trades (DARTs). In the trailing four quarters, the company recorded an average earnings beat of 19.9%.
Will E*TRADE Financial be able to keep the earnings streak alive this quarter too braving the industry challenges? Let's see what factors might have influenced the earnings report this time around.
Factors to Influence Q4 Results
E*TRADE Financial possesses some encouraging traits that may support its results. The company's initiatives toward reducing balance-sheet risk mark a positive for the quarter, although these will exert near-term pressure on the net interest margin. Notably, the company's loan portfolio has been experiencing a declining trend over the past few years, which continued in the first nine months of 2014 as well. Further, the quarterly run-off of the company's portfolio is expected to be in the range of 4-5% going ahead.
In third-quarter 2014, E*TRADE Financial continued to grow its brokerage business. A rise in DARTs and net new brokerage accounts positively impacted the revenues. The DARTs continued to rise in the month of October; whereas, in November, they remained unchanged year over year, while declining on a monthly basis. Volatility in the market as well as disengagement of the retail traders may put DARTs under pressure in the fourth quarter. Further, unfavorable macro issues may weigh on E*TRADE
Financial's top line.
E*TRADE Financial's activities during the quarter were not sufficient to win analysts' confidence. As a result, the Zacks Consensus Estimate for the quarter remained unchanged at 23 cents per share over the last 7 days.
Our proven model does not conclusively show that E*TRADE Financial is likely to beat the Zacks Consensus Estimate in the third quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy) or at least 2 (Buy) or 3 (Hold) for this to happen. Unfortunately, this is not the case here as elaborated below.
Zacks ESP : The Earnings ESP for E*TRADE Financial is -4.35%. This is because the Most Accurate estimate and the Zacks Consensus Estimate stand at 22 cents and 23 cents per share, respectively.
Zacks Rank : E*TRADE Financial's Zacks Rank #2 (Buy) increases the predictive power of ESP. However, we also need to have a positive ESP to be confident of an earnings surprise call.
Stocks That Warrant a Look
Here are a few finance stocks you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:
The Earnings ESP for Federated Investors, Inc. ( FII ) is +2.63% and it has a Zacks Rank #2. The company is slated to release results on Jan 22.
Ameriprise Financial, Inc. ( AMP ) has an Earnings ESP of +0.45% and a Zacks Rank #3. It is scheduled to report results on Jan 28.
Aon plc ( AON ) has an Earnings ESP of +1.08% and a Zacks Rank #3. It is slated to report results on Feb 6.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.