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TD Ameritrade Displays Solid Top-Line Strength: Time to Hold?

Zacks Equity Research

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

Nevertheless, the company has been able to gain analysts’ confidence, over the past 30 days. The Zacks Consensus Estimate for current-year earnings has been revised 1.5% upward to $4.00 in the same period. The stock currently carries a Zacks Rank #3 (Hold).

Shares of TD Ameritrade have lost 13.1% over the past three months compared with 5.3% decline of the industry.



TD Ameritrade remains a leading asset gatherer, with nine consecutive years of double-digit asset growth since fiscal 2008 in net new client assets. Notably, management expects total net new assets to exceed $90 billion this year from $60 billion in 2016. Also, the company’s net revenues recorded a five-year (2014-2018) compound annual growth rate (CAGR) of 14.9%. Momentum continued for both net new client assets and net revenues in the first nine months of fiscal 2019. Based on the company’s solid business model, focus on high net-worth clients and improving service model to boost engagement and retention, its top-line growth will likely continue.

TD Ameritrade’s growth prospects look encouraging, given its inorganic activities. With the acquisition of Scottrade Financial Services, the company’s retail business has improved and trading operations strengthened. Further, it invested in a regulated derivatives exchange and clearing organization, ErisX, with an aim to make digital currency products more accessible to retail clients.

TD Ameritrade’s trading volumes have been graphing an uptrend, mainly benefiting from the volatility in markets. We believe, in the near term, the company will be able to improve trading volumes backed by anticipated improvement in equity markets as well as its innovative trading platforms.

Nevertheless, TD Ameritrade’s rising operating expenses are a concern. Though total operating expenses declined in the first nine months of fiscal 2019, it witnessed a CAGR of 21.6% over the last four years (2015-2018). Furthermore, 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 has 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

T. Rowe Price Group, Inc. TROW has been witnessing upward estimate revisions for the past 60 days. Moreover, this Zacks #1 Ranked (Strong Buy) stock has rallied more than 17% year to date. You can see the complete list of today’s Zacks #1 Rank stocks here.

AllianceBernstein Holding L.P. AB has been witnessing upward estimate revisions for the past 60 days. Further, the company’s shares have gained 1.5% year to date. At present, it carries a Zacks Rank of 2 (Buy).

Ameriprise Financial, Inc. AMP has been witnessing upward estimate revisions for the past 60 days. Additionally, the stock has jumped around 26.3% year to date. It currently carries a Zacks Rank #2.

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