Rising Interest Rates, Volatility Should Bode Well for E*TRADE's Q1

April 19, 2018 — 10:55 AM EDT

E*TRADE reports fiscal first quarter earnings after the close of regular trading, and with volatility and interest rates on the rise, it is expected to post solid results. At least that's the view of Trefis, the platform created by a team of MIT engineers and Wall Street analysts that helps investors understand how companies' products affect share prices thinks. In a research report, Trefis said that it expects earnings per share to grow by 13% and revenue to increase more than 50% at E*TRADE Financial Corporation (ETFC) in 2018.

"We expect that interest-earning assets will be the key driver of growth. The Fed's interest rate hikes in 2017 led E*TRADE's interest-earning assets to grow by 23% in the year. The strong growth has continued in 2018 thus far, with over 20% growth in assets for January and February," wrote Trefis in the report. "Consequently, revenues from this segment, which contribute around 56% of the company's overall revenues, are likely to increase significantly."

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Heading into the quarterly earnings reports of the discount brokerages, Wall Street was upbeat about their prospects given the rise in interest rates and volatility in the stock market. The Fed's rate hikes mean the discount brokerages make more money from the cash they hold for clients, while volatility in the stock market typically increases the number of trades active investors make.

When Charles Schwab reported first quarter results earlier this week, it posted net income of $783 million, up 39% year over year. Adjusted earnings per share came in at $0.55, while revenue for the first three months of the year was $2.4 billion. Wall Street was looking for EPS of $0.53 and revenue of $2.36 billion. Trading activity in the first quarter jumped 40% year over year, while new accounts totaled 443,000, the highest quarterly level in 18 years. New customers for its retail business increased 42% year over year. The Charles Schwab Corporation (SCHW) also reported net new assets of $65.6 billion, which the company says implied an annualized growth rate of 7.8%, a level it hasn't seen since 2008.

Trefis isn't the only firm expecting a strong showing out of E*TRADE later on Thursday. Zacks Investment Research said that the rising volatility in the stock market thanks in part to President Donald Trump's tariff proposals and worries over a trade war with China should benefit the New York-based online brokerage as clients identify new ways to make money off of the new volatility. What's more, Zacks said that, thanks to growth in net brokerage accounts, E*TRADE could post trading revenues that improved during the first quarter. The Zacks Investment Research consensus calls for E*TRADE to report first quarter EPS of $0.79. In the year-ago period, the discount brokerage weighed in with EPS of $0.48.