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Low Trading to Hurt E*TRADE Financial's (ETFC) Q2 Earnings

Zacks Equity Research

E*TRADE Financial Corporation ETFC is scheduled to report second-quarter 2019 results on Jul 18. The company is expected to witness year-over-year growth in revenues and earnings.

In the last reported quarter, E*TRADE pulled off a positive earnings surprise of 16%, supported by improved net revenues, controlled expenses and a benefit to provision for loan losses. Further, the company registered a rise in customer accounts in the quarter. However, DARTs decreased on a year-over-year basis.

In addition, E*TRADE has an impressive earnings surprise history. It delivered positive earnings surprises in each of the trailing four quarters, the average beat being 11.03%.
 

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 remained unchanged, over the last seven days. Notably, the Zacks Consensus Estimate for earnings reflects 14.7% growth year over year, while for sales, a 6.6% year-over-year improvement is projected.

Factors that Might Influence Q2 Results

Trading Revenues to Disappoint: Despite strong equity markets and an improved Treasury-bond performance, low volumes and reduced client activity were witnessed in the to-be-reported quarter, partly on the moderating U.S. economic growth, along with uncertainty about the global trade regime and other lingering economic uncertainties. Therefore, expected fall in DARTs in the quarter will impact commission revenues as well. The consensus estimate for DARTs is 272,031, down 2.6% sequentially.

However, E*TRADE opened 1,219 and 14,310 gross new retail accounts in April and May, respectively, indicating that investors were interested in entering the market. Therefore, growth in retail accounts might provide some respite to trading revenues.

Overall, the Zacks Consensus Estimate for non-interest income of $258 billion for the second quarter indicates a 1.9% sequential decrease.

Interest Income Might Trend Downward: As net interest income constitutes a significant part of E*TRADE’s revenues, a soft lending scenario during the second quarter is predicted to impede growth in net interest income (NII) to some extent. Further, the Federal Reserve’s accommodative policy stance, flattening of the yield curve and steadily rising deposit betas will likely hurt net interest margin (one of the key metrics for gauging banks’ profitability) in the to-be-reported quarter. Yet, some support to interest income will be provided by rise in average interest earning assets.

Also, the Zacks Consensus Estimate for average interest earning assets of $62.1 billion for the June-end quarter indicates a sequential increase marginally.

Expenses Might Flare Up: The company plans to make several investments, along with spending money on marketing. This might escalate 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 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.

M&T Bank Corporation MTB is slated to release results on Jul 18. The company has an Earnings ESP of +0.20% and currently carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

SunTrust Banks, Inc. STI is also scheduled to report earnings figures on Jul 18. The company, which carries a Zacks Rank of 3 at present, has an Earnings ESP of +0.93%.

Comerica CMA is set to release April-June quarter numbers on Jul 17. The company has an Earnings ESP of +0.52% and currently carries a Zacks Rank of 3.

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