E*TRADE Set to Report Q4 Earnings: A Beat in the Cards?
We expect E*TRADE Financial Corporation ETFC to beat earnings expectations when it reports fourth-quarter and full-year 2015 results after the market closes on Thursday, Jan 21.
The New York-based investment broker has delivered an average positive earnings surprise of 14.4%, in the trailing four quarters, and might be able to keep this streak alive in the upcoming release.
Why a Likely Positive Surprise?
Our proven model shows that E*TRADE is likely to beat earnings because it has the right combination of two key components.
Positive Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, stands at +3.45%. This is very meaningful and a leading indicator of a likely positive earnings surprise for the company.
Zacks Rank #3 (Hold): Note that stocks with Zacks Ranks #1 (Strong Buy), 2 (Buy) and 3 have a significantly higher chance of beating earnings. The Sell-rated stocks (#4 and 5) should never be considered going into an earnings announcement.
The combination of E*TRADE’s Zacks Rank #3 and ESP of +3.45% make us confident of an earnings beat on Jan 21.
Factors to Consider
With operations spread worldwide, primarily in the U.S., Europe and Asia, E*TRADE is well poised to benefit from the prevalent volatility in global equity markets. This was reflected in increased daily trading volumes recorded by the company during the quarter.
Based on the monthly reports released by the company, the daily average revenue trades (“DARTs”) escalated over 7% to 148,777 at the end of Nov 2015, from 139,084 recorded in Sep 2015. Further, the company opened 24,227 and 27,698 new brokerage accounts for October and November, respectively, which indicates that investors were interested in entering the market. As such, trading revenues, including commissions and fees, are likely to trend upward in the to-be-reported quarter.
Further, elimination of E*TRADE’s high-cost legacy wholesale funding obligations in the third quarter, is projected to reduce interest expense, thereby bolstering its earnings power to some extent in the fourth quarter. This is because the company has been replacing such funding by on-boarding new low-cost deposits. For fourth-quarter 2015, E*TRADE had targeted to on-board $2 billion in deposits to its balance sheet.
Though the company’s top line is anticipated to exhibit moderate growth, we expect seasonal increase in advertising expenses to restrict bottom-line expansion. Notably, E*TRADE projects expenses to rise 4% sequentially to $305 million in the fourth quarter. Provision expense, however, is expected to trend near zero.
Additionally, the quarter might record some share buyback activity, as part of he company’s $800-million buyback program, announced in Nov 2015.
Nevertheless, the company’s activities during the quarter were inadequate to win analysts’ confidence. As a result, the Zacks Consensus Estimate for the quarter has remained unchanged at 29 cents per share over the past 7 days.
Stocks that Warrant a Look
The Earnings ESP for TD Ameritrade Holding Corporation AMTD is +2.78% and it has a Zacks Rank #3. The company is slated to release results on Jan 20.
Legg Mason Inc. LM has an Earnings ESP of +0.99 and carries a Zacks Rank #3. It is scheduled to report results on Jan 22.
Janus Capital Group, Inc. JNS has an Earnings ESP of +4.17% and a Zacks Rank #3. It is slated to report results on Jan 26.
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E TRADE FINL CP (ETFC): Free Stock Analysis Report
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LEGG MASON INC (LM): Free Stock Analysis Report
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