TD Ameritrade (AMTD) Displays Solid Trading: Time to Hold?

On Feb 15, 2017, we issued an updated research report on TD Ameritrade Holding CorporationAMTD . We believe the company's sustained organic growth, apart from several other factors, including a strong capital position and steady trading activities acted as tailwinds. However, in the absence of steady cost-control measures, escalating costs will lead to operational inefficiency and might hinder bottom-line expansion.

Despite the prevailing sluggish macroeconomic environment, TD Ameritrade's trading volumes have increased considerably. The company's average client trades per day climbed 4%, 14% and 8% year over year in fiscal 2013, 2014 and 2015, respectively, benefiting from the volatility in markets. Also, it increased slightly in fiscal 2016, with the improving trend continuing into first-quarter fiscal 2017 as well. We believe that in the near term, TD Ameritrade will be able to increase its trading volumes further, owing to a rebound in equity markets and benefits from its innovative trading platforms.

TD Ameritrade has been diligently making efforts to maintain its asset gathering momentum for the past few years. Continuing the trend, during fiscal 2016, the company witnessed an annualized growth rate of 9% in net new client assets, within the long-term target of increasing net new client assets on an annual rate of 7-11%.

Additionally, the company's net revenue recorded a 6% CAGR over the last five years, ending fiscal 2016. Based on the company's solid business model, focus on high net-worth clients, and improving service model to boost engagement and retention; we expect TD Ameritrade to experience significant top-line growth in the future.

Further, the company's growth prospects look encouraging, given its latest deal to acquire Scottrade Financial Services, Inc. This transaction is expected to result in significant scale to TD Ameritrade's retail business, fortify trading operations and expand its branch network substantially. Also, the deal is anticipated to generate double-digit EPS accretion, post conversion.

Nevertheless, we remain cautious regarding the slow improvement in net interest margin (NIM). Other concerns include lack of geographical expansion that limits growth prospects, escalating expenses and the prevailing stringent regulatory landscape. Notably, total operating expenses are projected in the range of $1.98-$2.06 billion in fiscal 2017.

Analysts' neutral stance on the stock has been reflected in the estimates over the past seven days. For fiscal 2017 and 2018, the Zacks Consensus Estimate remained unchanged at $1.74 and $2.06, respectively.

TD Ameritrade shares gained around 39.4% over the last six months, as against 43.7% gain in the Zacks categorized Investment Bank industry.

At present, TD Ameritrade carries a Zacks Rank #3 (Hold).

Stocks to Consider

E*TRADE Financial Corporation ETFC has been witnessing upward estimate revisions for the last 30 days. Further, the stock has climbed over 48.7% in the last six months. It currently carries a Zacks Rank #2 (Buy).

LPL Financial Holdings Inc. LPLA has been recording upward estimate revisions for the last 30 days. In addition, the company's shares climbed nearly 45.2%, over the last six months. It currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here .

The Goldman Sachs Group, Inc. GS has witnessed an upward earnings estimate revisions for the past 30 days. Its share price jumped 51.3% over the last six months. It currently boasts a Zacks Rank #1.

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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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