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TD Ameritrade (AMTD) Up 2.6% Since Last Earnings Report: Can It Continue?

·4 min read

It has been about a month since the last earnings report for TD Ameritrade (AMTD). Shares have added about 2.6% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is TD Ameritrade due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

TD Ameritrade's Q3 Earnings Beat, Revenues Increase

TD Ameritrade reported an earnings surprise of 29.8% in third-quarter fiscal 2020 (ending Jun 30). Adjusted earnings of $1.09 per share outpaced the Zacks Consensus Estimate of 84 cents. The figure also climbed 4.8% from the prior-year quarter’s reported tally.

The company witnessed an increase in average client trades per day, highlighting investors’ willingness to invest, leading to higher trading activity. Moreover, revenues escalated depicting high transaction volumes. However, the company’s results displayed escalating expenses. A fall in NIM also played spoilsport.

Including certain non-recurring items, net income for the quarter came in at $569 million or $1.05 per share compared with the $555 million or $1.00 per share reported in the prior-year quarter.

Revenues Climb, Expenses Flare Up

Net revenues for the reported quarter came in at $1.59 billion, up 6.7% year over year. This upside chiefly resulted from higher transaction-based and other revenues, partly offset by lower asset-based revenues. The reported figure handily surpassed the Zacks Consensus Estimate of $1.41 billion as well.

Total commissions and transaction fees surged 36.7% from the prior-year quarter to $652 million. Also, other revenues soared 89.8% year over year to $112 million.

However, total asset-based revenues for the June-end quarter amounted to $822 million, down 13.9% year over year, on lower net interest revenues, bank deposit account and investment product fees.

Also, the quarter's NIM came in at 1.39%, contracting 84 basis points year over year.

Total operating expenses flared up 4.8% year over year to $808 million. This upswing mainly resulted from rise in almost all components of expenses, partly mitigated by lower advertising and other expenses.

Strong Trading Activity

Average client trades per day for the fiscal third quarter more than tripled on a year-over-year basis to 3.4 million due to zero commissions and consistent volatile markets.

As of Jun 30, 2020, net new client assets totaled $33 billion, up 11% year over year on an annual basis. Total client assets came in at $1.46 trillion, up 11.5% year over year.

Average spread-based balance was $197.9 billion, up 38.5% year over year, while average fee-based investment balance significantly dropped 43.3% to $164.8 billion.

Balance-Sheet Position

As of Jun 30, 2020, TD Ameritrade’s cash and cash equivalents were $2.6 billion, down from the $2.9 billion reported as of Sep 30, 2019. Shareholders’ equity was $9.6 billion, down from the reported figure of $8.7 billion as of Sep 30, 2019.

Outlook

For fiscal 2020, revenues are expected to be $4.9-$5.3 billion and GAAP operating expenses are projected at $3-$3.1 billion, including advertising expenses of $250-$300 million and intangible amortization of $115-$120 million. NNA growth rate is expected to be 7-10%.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month. The consensus estimate has shifted 30.05% due to these changes.

VGM Scores

Currently, TD Ameritrade has a poor Growth Score of F, however its Momentum Score is doing a lot better with a C. However, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise TD Ameritrade has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.


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