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E*TRADE (ETFC) Up 8.6% YTD: Will the Stock Rally Further?

Zacks Equity Research

Financial stocks displayed a decent performance during the recently-reported earnings season. One such investment bank — E*TRADE Financial Corporation ETFC — has rallied 8.6% year to date compared with the industry’s growth of 9.1%.

This price performance is backed by the gradually improving operating environment and rate-hike scenario, which is beneficial for brokerage business. Furthermore, anticipated improvement in trading activities and several of its ongoing initiatives bode well for E*TRADE.

This apart, E*TRADE is part of the industry, which has a Zacks Industry Rank #101 (top 39%).

Moreover, E*TRADE currently carries a Zacks Rank #2 (Buy), with a Value Score of B. Our research shows that stocks with a Value Score of A or B, when combined with a Zacks Rank #1 or 2, offer the best upside potential.

Additionally, the estimates for this stock have been on an upswing. Over the last 60 days, the Zacks Consensus Estimate has moved up 4.3% and 2% for 2019 and 2020, respectively.

Fundamentally, E*TRADE’s earnings have jumped 36.08% annually over the last three to five years. The earnings growth momentum is anticipated to continue in the near term as well. The company’s projected EPS (earnings per share) growth (F1/F0) is 11.8% for 2019 and (F2/F1) nearly 6.5% for 2020.

Over the last four years (2015-2018), the company recorded a benefit to provision for loan losses, with the trend continuing into first-quarter 2019 as well. We believe this benefit is driven by the company’s efforts to shrink its balance sheet.

Further, with a rise in rates, brokerage firms are likely to engage in more investment activities. As brokerage firms earn interest income on un-invested cash in customer accounts, the rate hikes will enable these firms to invest at higher rates. As E*TRADE currently derives nearly 60% of its total net revenues from net interest income, the company is poised to benefit from the recent rate hikes.

Additionally, E*TRADE is focused on derivatives mix with a target of increasing it to 35% of daily average revenue trades and also set managed account assets under management target of $6 billion within the next two years. The company aims to achieve 2-3% improvement in its rate of annual organic growth, across accounts, assets and trades.

Other Stocks to Consider

Other top-ranked stocks in the same space include Stifel Financial Corporation SF, TD Raymond James Financial, Inc. RJF and LPL Financial Holdings Inc. LPLA. All these stocks currently sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

LPL Financial’s earnings estimates have been rising upward for 2019, in the past 60 days. Also, its share price has appreciated 38.4% year to date.

Raymond James’ earnings estimates for 2019 have been rising upward, over the last 60 days. Further, year to date, the company’s shares have jumped 14.4%.

Stifel Financial witnessed upward earnings estimates revision for the current year, in the past two months. Moreover, year to date, its shares have gained 38.1%.

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