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High Trading Revenues to Support E*TRADE (ETFC) Q4 Earnings

E*TRADE Financial Corporation ETFC is scheduled to report fourth-quarter 2019 results on Jan 23. The company’s performance will likely reflect year-over-year decline in revenues and earnings.

In the last reported quarter, E*TRADE pulled off a positive earnings surprise of 8%, supported by improved DARTs. Further, rise in non-interest income and a benefit to provision for loan losses were tailwinds. Additionally, the company registered a rise in customer accounts in the quarter. However, lower net interest income and escalating expenses were major drags.

E*TRADE has an impressive earnings surprise history. It delivered positive earnings surprises in each of the trailing four quarters, the average beat being 6.68%.

E*TRADE Financial Corporation Price and EPS Surprise

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

E*TRADE Financial Corporation price-eps-surprise | E*TRADE Financial Corporation Quote

Estimates for the to-be-reported quarter have moved marginally south, over the last 30 days. Notably, the Zacks Consensus Estimate for earnings reflects a  21.7% decline year on year, while for sales, estimates suggest a 7.8% year-over-year slump.

Factors at Play

Trading Revenues Up: With strong equity markets, increased client activities were witnessed in the fourth quarter, partly impacted by the political uncertainty and continued ambiguity over trade conflict, along with several other geopolitical matters. Therefore, expected rise in DARTs in the quarter is likely to have aided commission revenues as well. The consensus estimate for DARTs is 291,635, up 9.3% on a sequential basis.

After reductions of 13, 535 accounts in October, E*TRADE opened 35, 373 net new accounts in November, suggesting investors’ interest in entering the market. Therefore, growth in accounts might have driven trading revenues.

Overall, the Zacks Consensus Estimate for non-interest income of $234 billion for the fourth quarter indicates a 25% sequential decline.

Interest Income Weak: As net interest income (NII) constitutes a significant part of E*TRADE’s revenues, a soft lending scenario during the quarter is predicted to have marred NII growth to some extent. Further, the Federal Reserve’s accommodative monetary-policy stance, with decline in interest rates (three rate cuts in July, September and October), and its impact on the yield curve are likely to have dampened net interest margin in the quarter to be reported. Yet, rise in average interest earning assets are anticipated to have provided support to its interest income.

Notably, the Zacks Consensus Estimate for average interest earning assets of $55.7 billion for the December-end quarter indicates a slight sequential increase.

Elevated Expenses: The company plans to make several investments, along with spending money, in marketing. This might have escalated expenses during the quarter under review.

Earnings Whispers

According to our quantitative model, E*TRADE doesn’t have the right combination of the two key ingredients — positive Earnings ESP and a Zacks Rank #3 (Hold) or better — to increase the odds of an earnings beat.

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

Earnings ESP: The Earnings ESP for E*TRADE is 0.00%.

Zacks Rank: It currently carries a Zacks Rank #3, which increases the predictive power of ESP. But we need to have a positive earnings ESP to be sure of an earnings beat.

Stocks That Warrant a Look

Here are some stocks you may want to consider, as according to our model these have the right combination of elements to post an earnings beat this quarter.

Cullen/Frost Bankers, Inc. CFR is slated to release results on Jan 30. The company has an Earnings ESP of +0.18% and carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Bank of Hawaii Corporation BOH has an Earnings ESP of +0.37% and at present, holds a Zacks Rank of 2. It is slated to report quarterly figures on Jan 27.

T. Rowe Price Group, Inc. TROW is scheduled to release results on Jan 29. The company, which currently carries a Zacks Rank of 2, has an Earnings ESP of +1.47%.

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Cullen/Frost Bankers, Inc. (CFR) : Free Stock Analysis Report
Bank of Hawaii Corporation (BOH) : Free Stock Analysis Report
E*TRADE Financial Corporation (ETFC) : Free Stock Analysis Report
T. Rowe Price Group, Inc. (TROW) : Free Stock Analysis Report
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