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Will High Rates, Volatility Aid E*TRADE (ETFC) Q1 Earnings?

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E*TRADE Financial CorporationETFC is scheduled to report first-quarter 2018 results on Apr 19. The company is expected to witness year-over-year growth in revenues and earnings.

The stock is currently enjoying investors' attention and has been touching new 52-week highs for quite some time.

E*TRADE has robust organic growth prospects, and its inorganic growth efforts during the quarter are expected to keep driving the stock. Further, the company is likely to have benefitted from significant volatility and revival of client activities in the last two months of the first quarter.

Moreover, E*TRADE's majority of revenues comes from net interest income (NII) (around 65% of total revenues as of Dec 31, 2017). A rise in this component due to rising interest rates will boost the company's overall top line.

Before we discuss why an earnings beat might be in store, let's take a look at how the company performed in the prior quarter.

Last quarter, E*TRADE pulled off a positive earnings surprise of 3.2%, supported by increased net revenues and benefit from provisions. Further, the quarter witnessed an increase in daily average revenue trades along with growth in customer accounts. However, the positives were partially offset by higher expenses.

Further, E*TRADE has an impressive earnings surprise history. It has delivered positive earnings surprises in each of the trailing four quarters, with an average beat of 10.6%.

The stock has gained 32.8% over the past six months, outperforming the industry 's rally of nearly 14.6%.

E*TRADE Financial Corporation Price and EPS Surprise

E*TRADE Financial Corporation Price and EPS Surprise | E*TRADE Financial Corporation Quote

Factors That Might Influence Q1 Results

Trading Revenues Might Improve: Owing to rise in volatility during the quarter in response to concerns over trade war between the United States and China and a sharp sell-off in the tech sector, trading activities remained strong. This is likely to benefit the New York-based e-broker's revenues.

Further, with growth in net brokerage accounts, E*TRADE's trading revenues might have witnessed improvement in the quarter. The Zacks Consensus Estimate for these accounts is 60,000, a sequential increase of 30.4%.

Revenues Likely to Increase: As NII constitutes a significant part of E*TRADE's revenues, expanding net interest margin on the back of rising interest rates will likely lend support this quarter as well.

Notably, the Zacks Consensus Estimate for sales is $681.7 million, indicating improvement of 23.3% year over year.

Expenses Might Trend Up: The company plans to make several investments in 2018 along with spending money on marketing. This might lead to an increase in expenses during the quarter.

Though estimates for the to-be-reported quarter have remained stable over the last seven days, the Zacks Consensus Estimate for earnings of 78 cents reflects growth of 62.5% year over year.

Earnings Whispers

According to our quantitative model, we cannot conclusively predict an earnings beat for E*TRADE in the upcoming results. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #3 (Hold) or better for this to happen, which is not the case here as elaborated below:

(You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .)

Zacks ESP: The Earnings ESP for E*TRADE is -0.06%.

Zacks Rank: The stock carries a Zacks Rank #2 (Buy).

Stocks That Warrant a Look

Here are some stocks worth considering, as they have the right combination of elements to post an earnings beat this quarter.

BOK Financial Corporation BOKF has an Earnings ESP of +0.24% and a Zacks Rank of 2. It is slated to report first-quarter 2018 results on Apr 25. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

Moelis & Company MC is slated to release results on Apr 23. It has an Earnings ESP of +6.77% and carries a Zacks Rank #3.

TD Ameritrade Holding Corporation AMTD has an Earnings ESP of +0.84% and carries a Zacks Rank of 3. The company is also slated to release results on Apr 23.

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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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