This financial brokerage company beat analysts’ estimates by ten cents last quarter, and is currently forecast to grow more than 40% this year.
E*Trade (ETFC)
From Cabot Undervalued Stock Advisor
E*Trade Financial (ETFC) offers retail investors financial brokerage and banking products and services. E*Trade launched a new robo-advisor service in June, called Adaptive Portfolio. The service will help investors assess their investment goals and risk tolerance, and assemble a portfolio of ETFs and mutual funds.
year-to-date solid-line chart Sarah, this was in Maura’s email, but no chart attached. Please see if you can find it.
2016 revenue is projected to expand by 33%, enhanced by increased daily average trading volumes, and net new brokerage accounts. Rising interest rates should boost E*Trade’s net operating interest income, which represented about 60% of total net revenue in 2015. In addition, a 2015 departure from its mortgage loan business will improve E*Trade’s balance sheet. Consequently, Moody’s Investors Service raised its ratings on E*Trade Financial and E*Trade Bank in December.
In May, Fortune wrote about E*Trade’s troubled past and rosy future—a good read for shareholders.
The Wall Street consensus EPS estimates for 2016 and 2017 reflect 40% and 10% growth (December year-end). The 2016 earnings estimate shot upward immediately after the company reported a strong first quarter earnings beat in April; while the 2017 estimate has continued to slowly rise.
The stock’s 2016 and 2017 price/earnings ratios (P/E’s) are 15.3 and 13.9. ETFC traded in a P/E range of 16 to 27 in recent years.
In November, E*Trade announced that it will buy back up to $800 million of its common stock through March 31, 2017. This was the company’s first repurchase announcement in eight years.
I’d like to see the stock’s earnings growth rate continue to rise, to match the P/E. At this point, the stock is somewhat overvalued vs. 2017 earnings expectations.
ETFC has strong price support at 24.50, and short-term upside resistance at 28. There’s room for traders to profit within that range. Accumulate under 25.
Crista Huff, Cabot Undervalued Stock Advisor, www.cabot.net, 978-745-5532, June 22, 2016