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Why Is TD Ameritrade (AMTD) Up 0.1% Since Last Earnings Report?

It has been about a month since the last earnings report for TD Ameritrade (AMTD). Shares have added about 0.1% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is TD Ameritrade due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

TD Ameritrade's Q4 Earnings Beat Estimates on Improved Trading Metrics

TD Ameritrade recorded a positive earnings surprise of 4.5% in fourth-quarter fiscal 2018 (ending Sep 30). The company reported earnings of 92 cents per share, significantly beating the Zacks Consensus Estimate of 88 cents. Moreover, the figure soared 88% from the prior-year quarter.

The company's results displayed stellar revenues and elevated expenses in the fiscal fourth quarter. Rise in net interest margin (NIM) was also recorded. Notably, the company witnessed an increase in average client trades per day, indicating improvement in trading activity.

Including certain non-recurring items, net income for the quarter came in at $454 million or 80 cents per share compared with $211 million or 39 cents reported in the prior-year quarter.

For fiscal 2018, adjusted net income came in at $1.9 billion or $3.34 per share compared with $976 million or $1.84 recorded in fiscal 2017. Including certain non-recurring items, net income came in at $1.5 billion or $2.59 per share compared with $872 million or $1.64 reported in fiscal 2017.

Rise in Revenues Offset Escalating Expenses

For fiscal 2018, the company reported revenues of $5.5 billion, up 48.6% year over year. Furthermore, the revenue figure surpassed the Zacks Consensus Estimate of $5.4 billion.

Net revenues for the reported quarter came in at $1.4 billion, surpassing the Zacks Consensus Estimate of $1.39 billion. Also, the reported figure surged 42.2% year over year. The rise chiefly stemmed from higher transaction-based, as well as asset-based revenues.

Total asset-based revenues for the Sep-end quarter amounted to $890 million, up 40.8% year over year, driven by higher bank deposit account fees, as well as investment product fees and net interest revenues.

Commissions and transaction fees climbed 57% from the prior-year quarter to $482 million. Further, the quarter's NIM came in at 2.05%, expanding 39 basis points year over year.

Total operating expenses flared up 22.7% year over year to $763 million. The upswing mainly resulted from rise in a number of expenses, including employee compensation and benefits, advertising, occupancy and equipment costs, and other expenses.

Trading Activity Improves

Average client trades per day for the fiscal fourth quarter jumped 50% year over year to 795,104. For fiscal 2018, average client trades per day were 811,000, up 59% year over year.

As of Sep 30, 2018, net new client assets totaled $24 billion, up 8% year over year. Total client assets came in at $1.3 trillion, up 18.2% year over year.

Average spread-based balance was $142.7 billion, climbing 17.3% year over year, and average fee-based investment balance was up 35.9%, to $271.6 billion.

Balance Sheet Position

As of Sep 30, 2018, TD Ameritrade's cash and cash equivalents were $2.7 billion compared with $1.5 billion reported as of Sep 30, 2017. Shareholders' equity was $8 billion compared with $7.2 billion as of Sep 30, 2017.

Outlook

Fiscal 2019

The company expects to deliver greater than or equal to $5.75 billion, up around 6% year over year. However, given high levels of investor engagement and rate expectations, revenue is expected to be considerably higher.

For expenses, positive operating leverage is expected to be at least 200 basis points, even with modest revenue growth. From the adjusted baseline operating expense level of $2.8 billion, growth of 2-4% is expected and up to 3% for incremental investments based on revenue growth. Notably, operating expenses are expected to be in the range of $2.9-$3 billion. Advertising expenses are expected to be within $300-$320 million range.

Tax rate is expected to be around 25%.

For fiscal 2019, dividend payments of 30-40% of Non-GAAP net income are anticipated, though percentage might fall slightly on revenue tailwinds. Share repurchases resumed in the September quarter are expected to be up to 40% of Non-GAAP net income in 2019.

Amortization and intangibles are expected to be about $125 million.

Net new assets are expected to be within the 7-10% range. Commission rate excluding order routing are expected to be down 2-3% year over year.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 6.39% due to these changes.

VGM Scores

At this time, TD Ameritrade has a poor Growth Score of F, however its Momentum Score is doing a lot better with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise TD Ameritrade has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.

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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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