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TD Ameritrade Benefits From Acquisitions: Should You Hold?

Zacks Equity Research

TD Ameritrade Holding Corporation’s AMTD strong trading volumes, client focus and inorganic growth efforts are anticipated to yield positive results for the stock. Also, higher interest rates are likely to provide stability to the top line. However, rising expenses might hamper bottom-line growth.

Nevertheless, the company has been able to gain analysts’ confidence over the past 60 days. The Zacks Consensus Estimate for current-year earnings has been revised 1.8% upward to $4.07 in the same period. The stock currently carries a Zacks Rank #3 (Hold).

Shares of TD Ameritrade have lost 5.9% over the past six months compared with 13.4% decline of the industry.

TD Ameritrade’s growth prospects look encouraging, given its inorganic activities. With the acquisition of Scottrade Financial Services, the company’s retail business is likely to improve and trading operations might strengthen. Further, it recently invested in a regulated derivatives exchange and clearing organization, ErisX, with an aim to make digital currency products more accessible to retail clients. These involvements help channel new sources of revenues and increase profitability.

TD Ameritrade’s trading volumes improved consistently over the past few years on the back of volatility in markets. The company’s average client trades per day are expected to benefit from a rising rate environment and improvement in equity markets. Additionally, it continues to make investments in technology and advertising that are likely to enhance the overall business.

Nevertheless, TD Ameritrade’s rising operating expenses remain a concern. It witnessed a CAGR of 21.6% over the last four fiscal years (ended 2018). Further, the company’s expense base will likely be under pressure given its ongoing investments in technology and advice and guidance offerings.

Also, even though TD Ameritrade boasts an impressive capital deployment plan, its debt/equity ratio is unfavorable compared with the broader industry. Hence, the capital deployment activities might not be sustainable.

Stocks to Consider

A few better-ranked stocks in the same space are Evercore EVR, Stifel Financial Corporation SF, currently sporting a Zacks Rank #1 (Strong Buy), and E*TRADE Financial Corporation ETFC, carrying a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Evercore’s current-year earnings estimates have moved 5% upward over the past 60 days. Further, the company’s shares have jumped 27.3% over the past three months.

The Zacks Consensus Estimate for Stifel Financial for the current year has been raised 6.9% upward over the past 60 days. Over the past three months, shares of the company have gained 24.6%.

E*TRADE’s Zacks Consensus Estimate for current-year earnings has been revised 1.2% upward in the past 60 days. Also, the company’s share price has gained 3% in the past three months.

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