IBKR or E*TRADE: Which Investment Broker is a Better Pick?

Benefits from a stabilizing economy and improving interest-rate scenario have well positioned the finance industry.

The March-end quarter witnessed investors' anxiety on uncertainty over the number of rate hikes on upbeat economic numbers and rising inflation, which pulled the benchmark 10-year Treasury bond yields down. This reversed the rally experienced by finance stocks since last September, to some extent. Moreover, Trump's trade-tariff announcements on Chinese imports affected the stock market rally in the quarter.

After three straight quarters of muted activities, it appeared that volatility was back in the markets, with extremities in February and March. This resulted in higher trading activities benefiting brokerage firms.

Therefore, we are focusing on two major investment brokers - Interactive Brokers GroupIBKR and E*TRADEETFC .

Interactive Brokers, with a market cap of $31.95 billion, acts as an automated electronic broker in about 120 electronic exchanges and market centers globally. It specializes in executing and clearing trades in securities, futures, foreign exchange instruments, bonds and mutual funds. On the other hand, E*TRADE provides various brokerage and related products and services mainly to individual retail investors. It also offers investor-focused banking products and provides its services through digital platforms and online at two national financial centers, as well as through 30 regional financial centers in the United States. It has a market cap of $17.06 billion.

Interactive Brokers and E*TRADE both sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here .

Though both brokerages have similar business trends, deeper research into the financials will help decide which investment option is better.

Price Performance

Both banks have outperformed the industry (up 13.7%), over the last six months, witnessing stellar growth. While shares of Interactive Brokers have rallied 40.4%, E*TRADE has recorded growth of 44.5%. So, E*TRADE has performed better than Interactive Brokers.

Return on Equity (ROE)

ROE is a measure of a company's efficiency in utilizing shareholders' funds. ROE for the trailing 12-month period is 2.04% for Interactive Brokers and 11.64% for E*TRADE as compared with the industry's level of 9.80%. Therefore, E*TRADE reinvests its earnings more efficiently.

Earnings Estimate Revisions & Growth Projections

The Zacks Consensus Estimate for 2018 earnings of Interactive Brokers has moved up 5.2%, over the last 60 days. Meanwhile, the same for E*TRADE jumped 11.3% for this year, during the same time frame.

Moreover, current-year earnings for Interactive Brokers are projected to jump 44.4% year over year. For E*TRADE, the Zacks Consensus Estimate is pegged at $3.64 for 2018, reflecting a year-over-year increase of a massive 66.2%.

Hence, E*TRADE reflects better earnings growth prospects.

Sales Growth

Sales for Interactive Brokers for the current year are projected to move up 18.5%, year over year, to $2 billion. For E*TRADE, the Zacks Consensus Estimate is pegged at $2.9 billion for 2018, reflecting year-over-year growth of 22.2%.

Therefore, E*TRADE has an edge here as well.

Leverage Ratio

Interactive Brokers has no debt, while E*TRADE has debt-to-equity ratio of 0.31 compared with the industry average of 0.24. Therefore, Interactive Brokers has an edge over E*TRADE here.


Our comparative analysis shows that E*TRADE is better placed than Interactive Brokers when considering price performance and ROE, along with earnings and sales growth expectations. Interactive Brokers wins on the leverage ratio.

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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.

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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