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TD Ameritrade (AMTD) Shares Rise Despite Q2 Earnings Miss

Zacks

TD Ameritrade Holding Corporation AMTD recorded a negative surprise of 2.4% in second-quarter fiscal 2017 (ending Mar 31). The company reported earnings of 40 cents per share, missing the Zacks Consensus Estimate by a penny. However, results were up 5% from the prior-year quarter.

However, shares of TD Ameritrade gained 1.37% following its earnings release. The share price movement reflects investors’ positive sentiments over the improved trading activities.

The quarter displayed higher revenues and elevated expenses. Persistent decline in net interest margin (NIM) stemmed the downside. Notably, the company recorded a rise in average client trades per day, indicating improvement in trading activity.

The company’s net income for the quarter came in at $214 million, up 4.4% year over year.

Revenues Climb and Expenses Escalate

Net revenue for the quarter came in at $904 million, surpassing the Zacks Consensus Estimate of $884 million. Moreover, net revenue increased 6.9% year over year. The rise was chiefly due to higher transaction-based as well as asset-based revenues.

Total asset-based revenues for the quarter amounted to $526 million, up 11.9% year over year, driven by higher insured deposit account fees, as well as investment product fees and net interest revenue.

Commissions and transaction fees inched up 1.4% from the prior-year quarter to $365 million. However, the quarter's NIM was 1.41%, down 2 basis points year over year.

Total operating expenses climbed 8.5% year over year to $546 million. The rise was mainly stemmed by rise in a number of expenses, including employee compensation and benefits, professional services, occupancy and equipment costs, and other expenses.

Trading Activity Improved

Average client trades per day for the reported quarter increased 2% year over year to 517,000.

As of Mar 31, 2017, net new client assets totaled $19.5 billion, up 38.3% year over year. Total client assets came in at $847 billion, up 19% year over year.

Average spread-based balance was $119.7 billion, jumping 13.1% year over year and average fee-based investment balance was up 17.8%, to $180.4 billion.

Balance Sheet Position

As of Mar 31, 2017, TD Ameritrade’s cash and cash equivalents were $2.2 billion compared with $1.9 billion as of Sep 30, 2016. Shareholders’ equity was $5.3 billion compared with $5.1 billion as of Sep 30, 2016.

Outlook

The company reiterated its outlook for the fiscal 2017, which includes projected earnings of $1.50–$1.80 per share.

Our Viewpoint

Innovations in online trading, long-term investment in products and services, delivery of advanced customer service, and creative marketing and sales are some of TD Ameritrade’s key strategies, which will support top-line growth, going forward. In addition, the company’s association with TD Bank provides an opportunity for both firms to cross-sell products which prove conducive to long-term growth.

However, we remain cautious regarding elevated expenses, margin pressure and stringent regulations, which may weigh on the company’s financials in the upcoming quarters.

Currently, TD Ameritrade carries a Zacks Rank #4 (Sell). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of other Investment Brokers

Interactive Brokers Group, Inc. IBKR reported first-quarter 2017 adjusted earnings of 34 cents per share, which lagged the Zacks Consensus Estimate of 39 cents. Also, earnings came 33% below the prior-year quarter figure of 51 cents. Decrease in revenues, higher expenses as well as disappointing segment performance led to the lower-than-expected results. However, on the upside, the company recorded improvement in interest income and a rise in DARTs.

The Charles Schwab Corp.’s SCHW first-quarter 2017 earnings of 39 cents per share outpaced the Zacks Consensus Estimate of 37 cents. Revenue growth, lower level of fee waivers and no provisions were among the positives. However, higher expenses and a decline in trading revenues remained the headwinds.

Among others, LPL Financial Holdings Inc. LPLA is expected to report first-quarter numbers on Apr 27.


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