In a note released Monday morning, Jefferies analyst Daniel Fannon initiated coverage on three big names in the discount broker industry.
Charles Schwab (NYSE: SCHW) - Buy, $35 price target.
"Charles Schwab represents one of the premier asset gathering franchises within all of financial services," Fannon commented.
Fannon noted that Schwab has averaged five percent organic growth over the last eight quarters and said the company has "ample resources" to continue to increase its market share.
Additionally, he pointed out that, given its exposure to money funds, Schwab is the most leveraged among its peers to benefit from increases to short-term rates.
Schwab shares are up 1.7 percent.
E*TRADE Financial (NASDAQ: ETFC) - Hold, $24 price target.
"The turnaround story is clearly underway with improving capital ratios and the ongoing run off of the legacy mortgage portfolio," wrote Fannon.
Despite acknowledging the company's turnaround is underway, Fannon remains cautious on the E*Trade's ability to generate organic growth due to the highly competitive nature of the market space.
Over the next 12 months, Fannon is looking for the company's growth to be driven by lower loan loss provision, reduced servicing costs, and FDIC expenses and interest expense.
Shares of E*Trade are down slightly (0.12 percent).
TD Ameritrade (NYSE: AMTD) - Hold, $34 price target.
"Despite a recent slowdown in trading activity, TD Ameritrade continues to attract assets and new customers at a strong pace," said Fannon.
Despite beliefs that TD Ameritrade's core earning power is understated, Fannon said the company's shares are fairly valued, based on an 18x multiple of his CY2015 EPS estimate.
In terms of growth, Fannon noted TD Ameritrade has been able to attract assets at a double-digit rate and is looking for traditional retail and the institutional channel to maintain those above-average levels.
TD Ameritrade shares are up just under one percent.
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