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Trading Revenues to Support E*TRADE's (ETFC) Q1 Earnings

Zacks Equity Research

E*TRADE Financial ETFC is scheduled to report first-quarter 2020 results on Apr 23. The company’s performance will likely reflect year-over-year declines in revenues and earnings.

In the last reported quarter, E*TRADE pulled off a positive earnings surprise of 1.2%, supported by improved DARTs. Further, a rise in non-interest income and a benefit to provision for loan losses were tailwinds. Additionally, the company registered a rise in customer accounts during the quarter. Nonetheless, a bleak net interest income and escalating expenses were major drags.

E*TRADE has an impressive earnings surprise history. It delivered positive earnings surprises in each of the trailing four quarters, the average beat being 6.75%.

Estimates for the to-be-reported quarter have remained unrevised, over the last seven days. Notably, the Zacks Consensus Estimate for earnings reflects a 15.6% decline and a 0.7% fall for sales, year over year, respectively.

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

Key Factors

Rise in Trading Revenues: Increase in client activities and an unexpected rise in market volatility on the coronavirus scare  likely to have aided trading revenues (both equity and fixed-income). The global economic slowdown, the Federal Reserve’s accommodative stance and a number of activities in the second half of the quarter, impacting the economy, kept tickling trading counters which resulted in volatile market performance. Therefore, a projected rise in DARTs in the quarter is likely to have aided commission revenues as well. The consensus estimate for DARTs is 516,066, up 55.9% on a sequential basis.

Net new accounts of 40,008 and 50,707 in January and February, respectively, suggest investors’ interest in entering the market. Therefore, growth in accounts might have driven trading revenues.

Overall, the Zacks Consensus Estimate for non-interest income of $313 billion for the first quarter indicates an 18.6% sequential rise.

Weak Interest Income: As net interest income (NII) constitutes a significant part of E*TRADE’s revenues, a soft lending scenario during the quarter is predicted to have marred NII growth to some extent. Further, the Fed’s accommodative monetary-policy stance, with a decline in interest rates and its impact on the yield curve, are likely to have dampened the net interest margin in the quarter to be reported. However, a rise in average interest earning assets is anticipated to have provided support to its interest income.

Notably, the Zacks Consensus Estimate for average interest earning assets of $54.4 billion for the March-end quarter indicates a sequential decrease of 1.4%.

Elevated Expenses: The company plans to make several investments, along with spending money, in marketing. This might have escalated 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 +2.26%.

Zacks Rank: The stock currently carries a Zacks Rank #4, which decreases the predictive power of ESP.

Stocks That Warrant a Look

Here are a few 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.

BCB Bancorp, Inc. (NJ) BCBP is expected to release results around Apr 27. The company has an Earnings ESP of +4.17% and currently carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

SB ONE BANCORP SBBX is likely to release earnings figures around Apr 28. The company, which carries a Zacks Rank of 3 at present, has an Earnings ESP of +0.85%.

The Earnings ESP for Carolina Financial Corporation CARO is +1.43% and the stock carries a Zacks Rank of 3, currently. The company is expected to report quarterly numbers around Apr 30.

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Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.

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E*TRADE Financial Corporation (ETFC) : Free Stock Analysis Report
Carolina Financial Corporation (CARO) : Free Stock Analysis Report
SB ONE BANCORP (SBBX) : Free Stock Analysis Report
BCB Bancorp, Inc. (NJ) (BCBP) : Free Stock Analysis Report
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